Annual Report2014

Index

Section 1: Minister’s Note to Parliament 1

Section 2: Overview of the Fund through 20 Years of Democracy 2

Section 3: History of GEPF 6

Section 4: Vision, Mission, and Values 9

Section 5: Overview of Fund Benefits 10

Section 6: Financial Highlights for the Year Ended 31 March 2014 13

Section 7: Chairperson’s Report 18

Section 8: Outgoing Chairperson’s Review 20

Section 9: Report of the Principal Executive Officer 23

Section 10: Board of Trustees 27

Section 11: Corporate Governance 34

Section 12: The Office of the Principal Executive Officer 52

Section 13: Stakeholder Engagement 58

Section 14: GEPF Investments 60

Section 15: Responsible Investment Report 65

Section 16: Administration 73

Section 17: Actuarial Valuation 76

Section 18: Annual Financial Statements 79

1

Minister’s Note to Parliament

To the Speaker of Parliament

Annual report of the Government Employees Pension Fund for the year ended 31 March

2014

I have the honour, in terms of Section 9(6) of the Government Employees Pension

Law, 1996 (Proclamation 21 of 1996) as amended, to present the annual report of the

Government Employees Pension Fund for the period 1 April 2013 to 31 March 2014.

Nhlanhla Nene

Minister of Finance

2

Overview of the Fund through 20 Years of

Democracy

The story of our nation’s 20-year journey on the road of

democracy is a broad, sweeping narrative of tribulation, triumph

and achievement. Within six years we had achieved major trans-

formation of the landscape of governance and the composition

of the public service to better represent the entire population.

We had built institutions necessary for the understanding and

implementation of our constitutional democracy: the Reserve

Bank and an efficient tax administration to name but two. A

third and vitally important institution was the Government

Employees Pension Fund (GEPF).

The genesis of the present day Government Employees Pension

Fund can be traced back to the Record of Understanding signed

between the ANC and the then ruling National Party in 1992.

The Record of Understanding committed the parties, among

other things to the formation of the Government of National

Unity and to respecting existing employment contracts and

retirement compensations in any future restructuring of the civil

service. And thus the seed was planted.

In 1996, 10 existing public servants’ pension funds were

amalgamated into the Government Employees Pension Fund

(GEPF), transforming out of our fragmented past, a consolidated

pension fund for South Africa’s civil service. The Government

Employees Pension Law (1996) governs GEPF, and its mandate

is to manage and administer pensions and other benefits for

government employees in South Africa.

With the amalgamation of the funds, the benefit structure

was standardised and all discriminatory practices scrapped. All

members now would be expected to contribute at a rate

of 7.5% of their salaries and, more importantly, all female

members would enjoy the same benefits as their male

counterparts.

Pulling together the divergent administrative systems and

varying levels of operational effectiveness was an enormous

achievement, further made difficult by the introduction of

the Voluntary Service Packages in 1997. By 1999, however,

GEPF was firmly established and by 2001 had decentralised its

operations, and introduced a modernisation process and

improvement of its service delivery that is on-going to this

day. GEPF currently serves more than 1.6-million members and

pensioners spread across all nine provinces and provides services

through 13 regional offices across the country.

The focus since has been the transformation of GEPF to

being an inclusive, transparent and customer-service orientated

operation.

GEPF still had to deal with a further round of severance

packages for those civil servants who could not be deployed

as required by the Framework Agreement on the

Transformation and Restructuring of the Public Sector, which

had been negotiated with the Public Service Co-ordinating

Bargaining Council (PSCBC) in 2002. In addition, in 2002,

the rules of GEPF were amended to make provision for the

recognition of former Non-Statutory Force (NSF) as pensionable

service. The NSF Dispensation is on-going.

3

“In the enterprise development arena we have created more than 198 400 small, medium and micro enterprises and more than 45 470 jobs.”

In the 2003/04 financial year, a bill to establish the Public

Investment Corporation (PIC) – the proposed asset managers

for GEPF – was working its way through Parliament. This

clearly separated the legal requirements of the asset

managers and the retirement fund and was part of the greater

focus on good governance that had seen GEPF adopt the

principles contained in the King III Report on Corporate

Governance.

The Minister of Finance had served as the sole Trustee of GEPF

when it was formed in 1996. In June 2005, the first Board of

Trustees was appointed and inaugurated. The appointment of

a Board brought about a new era of member, pensioner and

stakeholder representation, participation and oversight in GEPF.

It also saw the establishment of five permanent committees to

give oversight to the strategic agenda of the Fund.

In 2006 GEPF’s drive to become the leader in responsible

investing was confirmed when the United Nations

revealed its Principles for Responsible Investment (UNPRI) at

the New York Stock Exchange. GEPF is one of the founding

signatories of the UNPRI which was launched to encourage

collaborative engagement, at an institutional level, on the

incorporation of environmental, social and governance issues in

decision-making, ownership and investment practices.

To strengthen governance and oversight, the first Board of

Trustees approved a change in the governance structure of

the Fund in 2008/09 that resulted in the separation of the

administration component of the GEPF. This is in line with

international retirement fund best practices. The outsourcing

of the administration function saw the establishment of the

Government Pensions Administration Agency (GPAA) on 1 April

2010. It allowed the Fund to strengthen its governance and

oversight while providing members and beneficiaries with the

best possible pension administration service.

Following on this, and in acknowledgment of the significant

role institutional investors can and should play in shaping the

development – and thus the future – of South Africa, GEPF’s

Developmental Investment Policy (DI) was launched in 2010.

GEPF and other concerned stakeholders also launched the Code

for Responsible Investing in South Africa (CRISA) in 2011.

GEPF’s Developmental Investment Policy (DI) adopted a four-

pillar approach to developmental investing: economic

infrastructure; social infrastructure; environmental investments;

and enterprise development (including black economic

empowerment and job creation).

Many of these developmental projects are located in areas where

poverty is high and GEPF believes these investments will go a

long way towards creating jobs, alleviating poverty, increasing

economic participation of impoverished communities, and

assisting and supporting with skills development and skills

transfer.

In the enterprise development arena we have created more

than 198 400 small, medium and micro enterprises (SMMEs) and

more than 45 470 jobs.

In September 2010, the Board of Trustees agreed on a

10-year strategic plan for the Fund, including but not limited to

expanding the awareness of the issues facing private defined

benefit pension systems while at the same time working with

the government on legislative reforms to enable GEPF to meet

its long-term obligations to retirees.

In 2012 GEPF established an Environmental, Social, and

Governance (ESG) Unit and a programme of engagement was

started with investee companies to ensure their compliance

with ESG imperatives. GEPF in 2013 signed private placement

memoranda (PPM) with our investment manager PIC for private

equity and infrastructure funds that will be invested in

commercially viable South African-based projects with a positive

long-term impact on development.

4

“GEPF in certain years in the last decade paid more than 100% of the increase in the CPI.“

GEPF in 2006 started out with assets under management

of R127-billion, which has since increased to more than

R1,4-trillion, and is currently the single largest investor in

Johannesburg Stock Exchange-listed (JSE) companies and has

significant holdings in government bonds, listed equity, money

markets as well as investments in unlisted equity and property.

It has more than 1,2-million (958 000:1996) members and

more than 391 000 (208 000:1996) pensioners.

This growth has gone hand in hand with an improvement in

GEPF’s funding level, which was 72% in 1996 to 102.7% in

2012 (according to the actuarial valuation of 31 March 2012).

This reflects the Fund’s robust investment strategy and its ability

to adapt to dynamic and turbulent market forces.

GEPF’s strategy and operational expertise has resulted in the Fund

being able to pay pension increases greater than the agreed basic

pension increase of 75% of the average increase in the

Consumer Price Index (CPI). GEPF in certain years in the last

decade paid more than 100% of the increase in the CPI.

Between 2003 and 2013 the average annual pension increase

was 5.87%, either matching the average CPI or surpassing it.

Effective date of increase Pension increase awarded Average CPI from 1 Dec to 30 Nov

Ratio pension increase divided by average CPI

1 April 2003 7.00% 8.49% 82%

1 April 2004 5.25% 6.99% 75%

1 April 2005 5.50% 1.14% 482%

1 April 2006 4.50% 3.35% 134%

1 April 2007 5.50% 4.45% 124%

1 April 2008 7.00% 6.82% 103%

1 April 2009 9.00% 10.93% 82%

1 April 2010 5.60% 7.40% 75.67%

1 April 2011 4.50% 4.50% 100%

1 April 2012 4.80% 4.80% 100%

1 April 2013 6.00% 5.70% 105%

Table 2.1: Pension increases over the past 10 years

5

“GEPF will continue to ensure the financial security of its pensioners and members.”

GEPF works to give members and pensioners peace of mind

about their financial security after retirement and during

situations of need by ensuring that all funds in its safekeeping

are responsibly invested and accounted for, and that benefits are

paid out efficiently, accurately and on time.

In looking back at the achievements of the last 20 years, GEPF

will continue to ensure the financial security of its pensioners

and members. GEPF will be a catalyst for change in terms of

securing investment opportunities locally, regionally and

globally to meet its pension liabilities. The Fund will strive to

improve its collaborative efforts with other institutional investors

on the continent to promote and enhance shareholder activism.

Milestones

2005: Inauguration of Board of Trustees

2006: Co-signatory of UNPRI

2010: GEPF changes governance structure resulting in

separate fiduciary and administrative entities and

creation of the GPAA

2011: Involved in establishment of Code for Responsible

Investing in SA (CRISA)

2013: Institutional Investor of the Year award (October) –

Africa Investor

2013: African Pension Fund Initiative of the Year

(September) – Africa Investor

3

History

Government Employees Pension Fund(GEPF) History

Section 212(6) of the (Interim) Constitution of the Republic

of South Africa, 1993 (Act No. 200 of 1993) required that

provision be made for a pension for all members of the public

service by means of a pension fund or funds established by law.

To give effect to section 212(6), the Office of the Public Service

Commission launched an investigation into the amalgamation of

the various government service pension funds, including those

of the then Transkei, Ciskei, Bophuthatswana and Venda.

As part of the post-1994 dispensation, the following 10

different government funds were amalgamated during 1996 to

form the Government Employees Pension Fund:

• Government Services Pension Fund;

• Temporary Employees Pension Fund;

• Authorities’ Service Pension Fund;

• Authorities’ Service Superannuation Fund;

• Ciskeian Civil Servants Pension Fund;

• Transkeian Government Service Pension Fund;

• Government Employees Pension Fund of Transkei;

• Government Pension Fund of Bophuthatswana;

• Government Pension Fund of Venda; and

• Government Superannuation Fund of Venda.

The Government Employees Pension Law was published in the

Government Gazette No.17135 of 17 April 1996. The then

President (Nelson Rolihlahla Mandela), by proclamation,

determined 1 May 1996 as the commencement date of the Law.

The provisions of section 2(1) of the Government Employees

Pension Law stipulate that all former funds, from 1 May 1996,

were to amalgamate with the Government Service Pension Act,

1973 (Act No. 57 of 1973). As of this date, the Fund was known

as the Government Employees Pension Fund.

GEPF is classified as a defined benefit fund established by law

in terms of section 1 of the Income Tax Act, 1962 (Act No 58

of 1962).

Past discrimination in terms of pension benefits

GEPF in collaboration with the Department of Defence, the

Public Service Co-ordinating Bargaining Council (PSCBC), the

Department of Public Service and Administration and other

stakeholders had to establish processes to recognise, as

pensionable service, the sacrifices made by individuals who

were part of the former non-statutory forces and who had

been integrated into the South African National Defence Force

(SANDF). The rules of GEPF (i.e. GEP Law and Rules) were there-

fore amended to make provision for the recognition of former

Non-Statutory Forces (NSF) service as pensionable service in

GEPF. This is commonly known as the NSF Pension Dispensation.

In terms of the dispensation the previous service of the former

members who entered into an employment agreement with any

state department that participates in GEPF may be recognised as

pensionable service for purposes of pension benefits.

7

“As part of the post-1994 dispensation, 10 different government funds were amalgamated during 1996 to form GEPF.”

Other discriminatory practices that had to be dealt with included

provisions pertaining to those individuals who went on strike in

the Ciskei between 1991 and 1994 and who were dismissed and

re-instated. Also, there were many casual labourers who had

been employed by government departments for years but could

not contribute to a pension fund because of their casual status.

As the GEP Law and Rules of GEPF did not make provision for

these cases, complex and protracted negotiations were entered

into in order to redress the situation.

GEPF Executive Authority

Year Interim Trustee Chief Executive OfficerChief Directorate: Pensions Administration

1996/07 Mr Trevor Manuel Mr Peet Maritz

1997/08 Mr Trevor Manuel Mr Peet Maritz

1998/09 Mr Trevor Manuel Mr Peet Maritz

1999/00 Mr Trevor Manuel Dr Frans le Roux

2000/01 Mr Trevor Manuel Dr Frans le Roux

2001/02 Mr Trevor Manuel Dr Frans le Roux

2002/03 Mr Trevor Manuel Dr Frans le Roux

2003/04 Mr Trevor Manuel Dr Frans le Roux

2004/05 Mr Trevor Manuel Dr Frans le Roux

Table 3.1: GEPF Executive Authority

8

* Dr le Roux term ended, 31 January 2006

** Ms Najwa Allie-Edries, 1 February 2006 – 31 May 2006

*** Ms Hannelie Pretorius, 1 June 2006 – 31 August 2006

**** Mr Phenias Tjie, 1 September 2006 – February 2013

***** Mr Goolam Aboobaker – Acting Chief Executive Officer – March 2013 to date

****** Mr John Oliphant was suspended – October 2013

******* Ms Joelene Moodley – Acting Principal Executive Officer – October 2013 to date

Year Principal Executive OfficerGEPF

Chairperson: Board of Trustees

Chief Executive OfficerGPAA

2005/06 Mr Martin Kuscus Dr Frans le Roux*

Ms Najwa Allie-Edries**

2006/07 Mr Martin Kuscus Ms Hannelie Pretorius***

Mr Phenias Tjie****

2007/08 Mr Martin Kuscus Mr Phenias Tjie

2008/09 Ms Maemili Ramataboe Mr Martin Kuscus Mr Phenias Tjie

2009/10 Ms Adri Van Niekerk Mr Arthur Moloto Mr Phenias Tjie

2010/11 Mr John Oliphant Mr Arthur Moloto Mr Phenias Tjie

2011/12 Mr John Oliphant Mr Arthur Moloto Mr Goolam Aboobaker *****

2012/13 Mr John Oliphant Mr Arthur Moloto Mr Goolam Aboobaker

2013/14 Mr John Oliphant******

Ms Joelene Moodley*******

Mr Arthur Moloto Mr Goolam Aboobaker

Table 3.2: GEPF Executive Authority

4

Vision, Mission,and Values

Vision

We seek to be a role model for pension funds worldwide.

Mission

As the Government Employees Pension Fund is the custodian

of a significant portion of the wealth of public servants, our

mission is to:

• ensure the timely and efficient delivery of the benefits

provided in the rules;

• protect pensioners against inflation to the maximum

extent possible, while maintaining the Fund’s financial

soundness;

• invest responsibly by engaging with organisations in

which we invest to encourage good governance, social

equity and sound environmental practices;

• empower our members, pensioners and other

stakeholders through adequate communication; and

• champion retirement industry initiatives.

Values

We value honesty, transparency, empathy, professionalism and

innovation.

Honesty means:

• being ethical and truthful;

• maintaining good governance practices; and

• not misrepresenting or withholding information to which

our stakeholders are entitled.

Transparency means:

• communicating openly and frequently with our

stakeholders;

• setting out information in a format that is clear and

understandable; and

• being open to scrutiny and oversight.

Empathy means:

• working collectively and cooperatively with our

stakeholders;

• caring; and

• maintaining customer focus.

Professionalism means:

• acting with due diligence, competence, confidentiality

and reliability.

Innovation means:

• championing research and development in the retirement

industry worldwide.

5

Overview of Fundbenefits

11

GEPF provided benefits to 1 276 753 active members and

391 071 pensioners and beneficiaries as at 31 March 2014. The

benefits are described below, along with examples of how they

work in practice.

Retirement benefits

The Fund provides benefits for normal, early and late retirement,

as well as retirement for medical reasons. Members whose jobs

have been affected by restructuring or reorganisation are able to

receive severance benefits.

Normal retirement

According to Fund rules, the normal retirement age for members

is 60. The benefits paid depend on whether a member has

fewer than 10 years of pensionable service, or 10 or more years

of pensionable service. Members with fewer than 10 years of

service receive a gratuity (a once-off lump sum cash payment)

equal to their actuarial interest in the Fund. Members with

10 or more years of service receive a gratuity and a monthly

pension (or annuity). Members who retire with more than 10

years of service can increase their spouse’s annuity entitlement

from 50% to 75% by reducing either the gratuity or the annuity.

Early retirement

Under certain circumstances, members may retire before

reaching the retirement age of 60. The years of pensionable

service determine the benefits payable. Members with 10 or

more years of service receive annuities and gratuities, calculated

in the same way as for normal retirement, but with a reduction

of a third of one percent for each month between the dates of

early retirement and normal retirement.

Ill-health retirement

Enhanced benefits are paid when members retire for medical

reasons or are injured on duty. In these circumstances, members

are eligible to receive both annuities and gratuities. For members

with fewer than 10 years of pensionable service, the benefits

are based on an increased period of service and calculated as a

percentage of the member’s final salary. If a member has at least

10 years of pensionable service and is discharged on account

of sickness that is not of their doing, an annual supplementary

amount is paid to him or her.

Resignation benefits

These benefits apply to members who resign or are

discharged due to misconduct or an illness or injury caused by the

member’s own doing. These members can either be paid a

gratuity (a once-off cash lump sum) or have their benefits

transferred into an approved retirement fund. If the benefits are

being transferred, GEPF pays the member’s actuarial interest to

the new approved fund.

12

“A spouse or eligible life partner is entitled to a percentage of the annuity paid to the member at date of death.”

Death benefits

Death benefits are paid when a member dies while in service

or within five years of becoming a pensioner. GEPF also pays

annuities to the surviving spouse(s) or orphan(s) of members

who die while in service or after retiring.

• Death while in service:

The benefit paid is based on the member’s period of

pensionable service. It is payable to the surviving

spouse(s) or to the beneficiaries or, if there are no

beneficiaries, to the member’s estate.

• Death after becoming a pensioner:

Retirement or discharge annuities are guaranteed for five

years after a member goes on pension. If the member

dies within this period, his or her beneficiaries receive the

balance of the five-year annuity payments (excluding the

annual supplement) as a once-off cash lump sum.

Spouses’ annuity

A spouse or eligible life partner is entitled to a percentage of

the annuity paid to the member at date of death. The same

applies if the member dies while in service and had a full

potential service period of at least 10 years (meaning pension-

able service years plus unexpired years for normal retirement). If

members retired before 1 December 2002, the spouses’ annuity

is 50% of the annuity the pensioner was receiving at the date of

death, but members who retired on or after 1 December 2002

had the option of increasing the spouses’ annuity benefit from

50% to 75%. This arrangement applied to all members because

the Board resolved that all current pensioners of the Fund be

allowed to reduce their pension for an increased spouses’

pension from 50% to 75%. This option was only available to the

pensioners for a limited period. The reduction will be calculated

based on the member/pensioner’s age and gender, spouse’s

actual age and the remaining guarantee period.

Orphans’ annuity

GEPF pays annuities to the orphans of members who became

pensioners on or after 1 December 2002. Orphans’ annuities

are also payable when a member dies in service with a potential

service period of 10 years or more. These annuities are paid

when a member’s spouse dies, leaving eligible orphans.

Funeral benefits

Previously, the Fund provided funeral benefits on the death of

members and pensioners whose pension commenced only on

or after 1 December 2002 and on the death of spouses and

eligible children of members and pensioners whose pension

commenced after 1 December 2002. However, the Board

approved that this benefit be extended to all pensioners whose

pension commenced before 1 December 2002 and who were

alive at the effective date of the rule amendment. The rule

amendment was Gazetted and effected on 1 April 2012.

Accumulated funds and reserves as at 31 March 2014

The Fund’s accumulated funds and reserves amount to R1 426-billion. Accumulated funds and reserves have grown at an average rate of

15.8% over the past 10 years, reaching R1 426-billion as at 31 March 2014.

R-Billion

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

416 546 659 707 640 801 914 1039 1244 1426

6

Financial Highlights for the Year Ended 31 March 2014

Table 6.1: Accumulated funds and reserves as at 31 March 2014

14

Investment portfolio

The Fund’s investment portfolio grew by 14.9% from R1 238-billion in 2013 to R1 423-billion in 2014. The increase in the investment

value is mainly due to new investments in foreign collective investment schemes and loans, and increase in fair values of equities, bills and

bonds and collective investments schemes.

R-Billion

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

419 552 662 716 622 798 911 1036 1238 1423

Table 6.2: Investment portfolio

15

Contributions received and accrued for the year ended 31 March 2014

The Fund receives a percentage of members’ pensionable salaries as contributions. Contributions received increased in the current year

by R1-billion. This increase is mainly due to membership and public sector employees’ salary increases.

R-Billion

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

20 20 23 26 30 36 40 51 49 50

Table 6.3: Contributions received and accrued for the year ended 31 March 2014

16

Benefits awarded for the year ended 31 March 2014

The Fund awards benefits upon a member’s resignation, retirement or death. The Fund also pays funeral benefits. Benefits paid increased

by R15-billion in the current year mainly due to an increase in benefits provision and the number of exit cases processed.

R-Billion

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

20 16 21 24 29 28 30 37 43 58

Table 6.4: Benefits awarded for the year ended 31 March 2014

17

Table 6.5: Fund’s assets return

Fund’s assets return

During the reporting period, the Fund’s assets yielded an average return of 12.5% (2013: 16.0%), driven mostly by a decrease in net

investment income. This equates to a net investment income of R191-billion (2013: R196-billion).

R-Billion

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

16.8 23.3 16.8 6.7 -10.2 19.7 12.2 11.9 16.0 12.5

7

Chairperson’s Report

On 17 April 2014, the then Minister of Finance, Pravin

Gordhan, inaugurated GEPF’s new Board of Trustees,

of which I have been elected Chairperson. On behalf

of my fellow members of the Board, I extend sincere

appreciation to our predecessors for their stewardship of the

Fund. In particular, we thank the former Chairperson, Mr Arthur

Moloto, whose review of the 2013/14 financial year is presented

in Section 8.

Over the past 18 years, GEPF has become a significant and

substantial leader within the global pension fund sector. It is

imperative, therefore, that it remains abreast of international

thinking on all relevant matters, including, but not limited to,

corporate governance, environmental and social concerns, the

responsible use of investments, retirement and benefit reforms,

and actuarial matters.

In June this year, I had the honour of attending the annual

Responsible Investor (RI) Europe 2014 conference in London to

witness first-hand that leadership role. GEPF’s Annual Report

2013 was awarded the Commended, Best RI Report by a Large

Fund at the annual RI Reporting Awards 2014 event.

GEPF was competing against funds from Australia, Canada,

France, the Netherlands, New Zealand, Norway, and Sweden

for this prestigious award in the large pension funds sector –

those with assets under management greater than €25-billion

(R250-billion). GEPF shared the commended honour with the

Canadian Pension Plan Investment Board (CPPIB), one of the

world’s top 10 largest funds.

The RI Reporting Awards showcase excellence in responsible

investment and ESG reporting and are intended to encourage

best practice and transparency by recognising the highest

standards in the disclosure of responsible investment (RI)

activities by asset owners globally.

I am proud of the leadership GEPF has shown and honoured that

it has been recognised.

The year ahead

While we are proud of GEPF’s contribution to and importance

within the global pension arena, we must never forget that its

primary function is to serve its pensioners and members: from

the basic task of ensuring their benefits are paid on time and

that they receive good, efficient, and attentive services, to

making sure that the funds are managed in a transparent,

responsible and profitable manner. We are the custodians of

their future – and a substantial contributor to the future success

of their nation – and we need to act accordingly.

GEPF remains committed to playing the dual role of

protecting the wealth of its members and pensioners, while

contributing meaningfully to the development of the country

and the continent.

GEPF will continue to improve its operational risk management

policies, to engage with companies and other institutional

investors in championing the principles of responsible

investment, and to encourage good governance, social equity,

and sound environmental practices. GEPF recognises that

because many of its services are outsourced it is imperative that

19

“It is imperative that members maintain their trust in GEPF’s ability to ensure the timely and efficient delivery of the benefits provided for in the rules.”

members maintain their trust in GEPF’s ability to ensure the

timely and efficient delivery of the benefits provided for in the

rules.

GEPF has identified the need to establish an enterprise-wide

risk management function and appointed an external service

provider to render this service until such time as a full-time

resource is required. The risk management function reports into

the Finance and Audit Committee to ensure its independence

and effectiveness. A review of GEPF’s risk register has been

conducted and it is envisaged that the current Board would

approve this within its tenure.

During the prior year a disciplinary process commenced with

respect to the Principal Executive Officer. This matter is on-

going. An Acting Principal Executive Officer was appointed by

the Board and continued in office during the period ended 31

March 2014. The Fund and the Board continue to operate and

manage this risk in terms of the framework and Law and Rules

of the Fund.

GEPF has invested in African Bank Investment Limited (Abil)

in the form of publicly traded equities and debt (secured and

unsecured). GEPF’s exposure to Abil was in line with the

benchmark index, and as such GEPF was not in an overweighted

position in the investment. GEPF, through the PIC, has invested

approximately half of the R10-billion invested into African Bank

to recapitalise the Bank, although at this stage the figure is sub-

ject to confirmation.

GEPF is committed to becoming a catalyst for change through

an investment strategy directed at promoting infrastructure

development and job creation, and improving the lives of

Africans while at the same time growing its investment portfolio.

The following are some of the strategic initiatives on which this

Board will have to focus:

• Implementation of the Additional Voluntary Contributions

and Preservation Fund Projects;

• Finalisation and implementation of the unlisted

investment model;

• Appointment of a master custodian; and

• Enhanced member and beneficiary communication and

education.

In conclusion, I wish to welcome the new Board of Trustees and

reiterate that we look forward to working with the management

and staff of GEPF and all our stakeholders to ensure that the

Fund delivers an impeccable and reliable service to its pensioners

and members.

I would also like to take this opportunity to thank the executive

management team and staff for all their hard work and

dedication during the 2013/14 financial year.

Dr Renosi Mokate

Chairperson: GEPF Board of Trustees

8

Outgoing Chairperson’sReview

In 2009 I had the honour and privilege to be appointed

Chairperson of the Board of Trustees of the Government

Employees Pension Fund. It gives me great pleasure and

satisfaction to know that the esteemed Dr Renosi Mokate

will now occupy the chair. The Trustees, new and old, are in

excellent hands. More importantly, the pensioners and members

can rest assured that GEPF and the Board of Trustees will

continue to act in their best interests.

Although not everything can be measured by the bottom line,

I am proud to announce that as at the end 31 March 2014,

pensions saw an increase of 5.3% – a figure in line with

annual inflation. There can be no better testimony to the

correctness of the investment strategy that the Board of

Trustees has adopted. I want to congratulate the Public

Investment Corporation (PIC), our asset manager, for work well

done and enabling GEPF to realise these pension increases.

When I was in Nairobi and had the honour of addressing

delegates at the 4th Annual Africa Conference on investment

in infrastructure across the continent, I outlined the strategy

and rationale behind our investments on the continent. I called

on governments and financial institutions to develop capacity

and new financial tools for our continent, although young and

vigorous in terms of its institutions, is bursting with economic

potential.

Africa’s economic development and growth prospects are

worthy of GEPF’s attention, and it would be irresponsible for

us not to see the many investment opportunities right on our

doorstep.

There are many good reasons to be optimistic about such

opportunities, but we have to find innovative approaches to

confront the infrastructure deficit that currently is sabotaging

Africa’s development.

GEPF responded to this opportunity by redesigning its

investment strategy, specifically its strategic asset allocation

towards investments, to provide a significant economic

contribution to the African continent. To this end, 5% of

assets under management were allocated for investments on

the continent (excluding South Africa). GEPF’s mandates in

infrastructure and private equity in Africa (Ex-SA) reflects a

commitment of US$1.25-billion to both the Pan African

Infrastructure Development Fund (PAIDF) and the PIC.

The following are two examples of how this is reflected in GEPF’s

developmental investment strategy on the continent – including

South Africa – both of which are linked to renewable energy. A

sustainable energy supply constitutes a significant part of the

critical sectors of the local economy, and to ignore this would

negatively impact the economy and our investment portfolio.

The Industrial Development Corporation (IDC) concluded a

R5-billion private placement with PIC for a ‘green bond’ that

would facilitate funding for businesses looking to invest in

clean-energy infrastructure developments. This represented

an important landmark in the on-going implementation of the

development investment policy of GEPF.

This policy seeks to invest in renewable-energy projects – and

other infrastructure projects – that make good investment sense,

and which contribute to South Africa’s and the continent’s

developmental agenda.

21

“The Investment Committee has applied itself to the matter of increased investments in the unlisted market sector.”

In Kenya, we have invested in the independent power producer

Aldwych, in the Lake Turkana Wind Power project (LTWP). This

project aims to provide 300MW of reliable, low-cost wind power

to the Kenyan national grid, equivalent to approximately 20% of

the current installed electricity-generating capacity.

Again, this is an indicator of the commitment GEPF has shown

to the continent, and is an example of the excellent work done

by the PAIDF to ensure that Africa is connected to the world.

I should point out that GEPF made a $250-million commitment

to the establishment of the Pan-African Infrastructure Develop-

ment Fund (PAIDF1). An additional $350-million has been com-

mitted to the second Pan-African Infrastructure Development

Fund (PAIDF 2), which is a further indication of GEPF’s commit-

ment to building the African continent and its infrastructure.

Keep in mind that we are not investing as a philanthropic ex-

ercise: the Board is of the view that it will realise good returns

from these investments.

The Investment Committee has applied itself to the matter of

increased investments in the unlisted market sector. Since the

reform of the country’s Pension Funds Act in 2011 with key

amendments to Regulation 28 of the Act, there have been

increasing interest and investment in private equity. South

African pension funds can now invest up to 10% of their

total assets in private equity, which in the case of GEPF is an

estimated US$13-billion. The 10% is split equally with 5% for

the rest of Africa and 5% for global investments.

It must be kept in mind that GEPF is a juristic entity governed

by the Government Employees Pension Law, 1996 (GEP Law)

and not the Pension Fund Act 24, 1956, or the Public Finance

Management Act 1, 1999. While it is not responsible to the

regulations of the Financial Services Board or answerable

to the Pension Fund Adjudicator, it strives in terms of best

practice to adhere to and comply with the principles and

philosophies embodied in such institutions and as specified in

Regulation 28. PIC on behalf of GEPF, has to date placed 0.7% of

its African allocation and, given the lack of liquidity in many sub-

Saharan markets, much of the investment will be via private equity

opportunities that avail themselves. The global allocation of 5%

has been outsourced and is mostly in passive equity and bond

mandates.

The Board is aware that as a pension fund we are

substantial investors and as such we expect that the private

equity funds will meet not only the requirements stipulated by

the Registrar of Pension Funds but will adhere to GEPF’s standards

and policy requirements. These include – but are not limited to –

environmental and social sustainability standards, governance,

integrity, due diligence, and fund terms that are consistent with

best market practice.

With respect to training and skills development, GEPF has

made considerable progress in the training of the Trustees,

recognising that financial management and investment vehicles

are complex and constantly evolving. We want our Trustees to

be kept abreast of these developments. The previous board was

brought up to scratch through attending training courses and by

benchmarking GEPF to global best practices.

We have constantly sought to measure GEPF, its Board of

Trustees and management against international benchmarks

of excellence. In this regard, the Independent Remuneration

Committee was established following the consideration that,

first, it would not be best practice to enable the Trustees to

determine their own fees; second to benchmark the

remuneration package of the executives to what is available in

the market; and finally to develop the best remuneration policies

in line with what was happening in the market.

22

“A highlight of the year was bringing the seventh annual PRI in Person 2013.”

The modernisation programme continues and additional funds

have been allocated to ensure this is followed through. We

have achieved critical milestones but much remains to be done

especially as regards the automated interface between the GPAA

and relevant government departments.

A highlight of the year was bringing the seventh annual PRI in

Person 2013 to South Africa in October 2013. PRI in Person is

the signatory investor event of the United Nations-supported

Principles for Responsible Investment and the one opportunity

that signatories – and potential signatories – have to meet,

collaborate and learn from their peers and engage in debate

with experts and thought leaders.

In closing I would like to extend my thanks and appreciation to

my fellow Trustees and colleagues at GEPF. I have been greatly

blessed by the fact that I have been able to work with men

and woman of such high calibre and integrity. These are the

people whose leadership and adherence to the best levels of

professionalism has made sure that our pensioners and

members enjoy their benefits. I am honoured to have been able

to lead and work with such great men and women.

Thank you.

Arthur Moloto

9

Report of the Principal Executive Officer

Our core business, governed by the Government Employees

Pension Law (1996), is to manage and administer pensions

and other benefits for government employees in South

Africa. GEPF serves the retirement interests of 1 276 753

members and 391 071 pensioners receiving monthly annuity

benefits. We work to give members and pensioners peace of

mind about their financial security after retirement and during

situations of need by ensuring that all funds in our safekeeping

are responsibly invested and accounted for and that benefits are

paid out efficiently, accurately and on time.

For the tenth year running, GEPF achieved a 100% consumer

price index (CPI) pension increase for the 2013/14 financial year.

As at 31 March 2014, GEPF’s assets under management

amounted to R1 423-billion, an increase of R185-billion from

R1 238-billion a year ago, confirming the Fund’s status as

Africa’s largest pension fund, and one of the top 10 to 20

pension funds worldwide.

The total return for the Fund for the year to 31 March 2014

was 15.4% as compared to a benchmark return of 15.6%. Over

the three years ended 31 March 2014, the Fund produced an

annualised return of 15.4% (or 53.7%) compared to the

benchmark return of 15.9% (or 55.6%).

Developmental investment and unlisted investment

The Developmental Investment (DI) policy has now been

fully incorporated into GEPF’s mandate. The model, legal

structure and monitoring mechanisms for the unlisted

investments portfolio have been agreed to and will be finalised

following internal processes conducted by GEPF’s asset

managers, the Public Investment Corporation (PIC), the results of

which are expected in by the end of the 2014/15 financial year.

Responsible Investment

GEPF’s responsible Investment (RI) policy remains an on-going

process and GEPF’s engagement with companies on matters of

environmental, social and governance (ESG) issues continues. In

addition, GEPF is compiling an online ESG database. (See page

65)

Ensuring members and pensioners’ interests are taken care of

GEPF has engaged with the Government Pensions Adminis-

tration Agency (GPAA) to review and compare the existing

funding model in an effort to enhance efficiencies in

administration and to ensure that it is in line with the industry

best practice. Various funding model options will be explored

and a paper on the different options will be presented to the

Board by December 2014.

GEPF’s specially appointed task team has consistently been

researching benefit enhancements to ensure the Fund is aligned

to emerging pension reform trends.

24

“GEPF reduced the unclaimed benefit account from R600-million to R493-million.”

The modernisation programme embarked on by the GPAA has

been a vital, on-going exercise to improve service delivery to

GEPF’s members and pensioners. It is primarily intended to

improve business processes and governance through investment

in improved administration infrastructure – especially around

ICT platforms and processes – and facilities that will enhance

customer service, outreach and education. The pressing need

of the modernisation programme is to develop and improve

the employer departments’ interface and reporting capabilities,

namely, switching to electronic data capture and removing as

many manual processes as possible (which also helps reduce

fraud).

Within this financial year GEPF and the GPAA have achieved

some notable successes. A partner was appointed in April 2013

for the implementation of the Technical Architecture Design

(TAD), and the first deliverables, including the logical operating

model, the data centre revamp and technology acquisition were

completed by 31 March 2014.

The benefits payment automation – termed Go Live – was

launched on 31 August 2013. Currently 130 employers –

representing 81% of membership – have adopted eChannel for

the online submission of exit documentation.

The Retirement Member Campaign (RMC) saw a reduction in

the turnaround time for exit to date of payment from 57 days

to approximately 20 days. In addition, GEPF reduced the un-

claimed benefit account from R600-million to R493-million. This

has been made possible by the appointment of tracking and

tracing agents to assist us to locate untraceable beneficiaries

across the country.

The Call Centre Optimization Project was unfortunately

delayed when the GPAA decided not to adopt the SARS Telephony

option and put out a tender for a hosting solution, which

was approved in November 2013. The Executive Committee

approved the decision to move the call and walk in centre to the

Kingsley Centre, in Pretoria and was completed in April 2014.

Governance

GEPF maintains an on-going review of financial governance

processes and procedures to ensure effective management of all

operations of the organisation. In addition, GEPF has sound risk

management policies in place that monitor the potential risks in

all its investments and is able to control those risks in a way best

suited to its long-term investment objectives.

GEPF also continues to play a key role in embedding ESG

practices in private equity investments, and to ensure that asset

managers do not simply use ESG as a box-ticking exercise. It

has made significant contributions to international collaborative

initiatives such as the ESG Disclosure Framework for Private

Equity and the Institutional Limited Partners Association (ILPA)

Private Equity Principles.

The Framework is intended to help define the information

needed by investors – such as GEPF – in order that they

can assess how private equity firms manage ESG risks and

opportunities across their portfolios. The document outlines

eight objectives common to many investors who require

more structured ESG disclosures within their private equity

investments. The first five objectives relate to the Fund due

diligence process, and the next three relate to disclosures during

the life of the Fund.

The ILPA Private Equity Principles contain best practice

concepts and speak to issues relating to the alignment of

interest between investors and the people managing the fund,

governance, transparency and reporting. It is intended to im-

prove the private equity industry for the long-term benefit of all

its participants.

Due to significant functions being outsourced to the GPAA

and PIC, the following committees were established during the

financial year to ensure that GEPF’s strategic partners deliver on

their mandate:

25

“Management and staff have all agreed to adopt value-centred behaviours in the conduct of their duties.”

• Communication liaison committee between GEPF and the

GPAA, as well as GEPF and PIC

• Risk Liaison committee between GEPF, the GPAA and PIC

In the 2013/14 financial year, the subsistence and travel policy

was reviewed and approved by the Board. Efficiencies in Supply

Chain Management (SCM) were also implemented following a

process review from an end-to-end perspective.

GEPF strives to ensure that all its Board’s governance practices

are aligned with the requirements of King III and PF130. During

this reporting period there was an increase from 60% to 62%

in the practices with which GEPF is in full compliance. A revised

project plan was submitted and approved by the Board and

implementation thereof will commence in the 2014/15 financial

year.

Sustainability reporting

The Global Reporting Initiative (GRI) launched new guidelines

for sustainability reporting – referred to as G4 – in May 2013.

Members of GEPF’s Sustainability Reporting Committee (SRC)

were trained in the new guidelines. In addition, GEPF will

continue to focus on aligning its Annual Report with the recently

approved International Guidelines on Integrated Reporting.

Human Resources

GEPF strives to be the employer of choice and believes

strongly in the continuous development and training of its

personnel as a key driver in the successful implementation of

its business objectives. During the 2013/14 financial year, GEPF

conducted an organisation-wide skills audit (current situation)

and training needs analysis (guidelines for future needs) that

provided an accurate overview of its training requirements.

The skills audit focused on behavioural competencies and

technical skills in relation to business needs, strategies and

priorities. The skills audit implementation plan will also form part

of the individual development plans of employees.

GEPF through its Remuneration Committee (REMCOM)

embarked on a review of GEPF’S remuneration policy and

strategy. Discussions around critical workforce segmentation

have been undertaken and will be embedded in the appropriate

policies regarding retaining key staff.

Management and staff have all agreed to adopt value-centred

behaviours in the conduct of their duties. Value ambassadors

were appointed and they will report on their progress to the

Principal Executive Officer (PEO).

Employment Equity Plan

Unfortunately, the Employment Equity Plan (EE) Plan was

not completed in the 2013/14 financial year. However, an

Employment Equity Forum was appointed and the Acting PEO

issued a Statement of Intent along with workshops to explain

the Employment Equity Act. The plan will be developed for the

2014/15 financial year and will be submitted to the Department

of Labour by end October 2014.

Ethics

GEPF’s ethics code and policy were drafted and workshopped

with staff, with the view to ensure effective rollout of the

policy. In addition, ethical risks have been incorporated into

GEPF’s Risk Register. In this financial year, a number of

deliverables were achieved, including leadership’s commitment

to ethics, the management, risk assessment and strategy of

ethics. The ethics programme will be rolled out during the

2014/15 financial year.

26

“Another highlight was GEPF’s move to its offices in Riverwalk, which was completed on time and within budget.”

Managing ICT

Service delivery and accountability is being monitored

on an on-going basis through monthly Information and

Communications Technology Steering Committee (ICT)

meetings. A field service engineer has been deployed

permanently at the GEPF. Additional interventions to enhance

ICT capabilities in the Fund will continue to be explored.

Highlights

The year’s highlights include GEPF success in hosting and

facilitating the seventh annual PRI in Person 2013 to South

Africa in October 2013.

GEPF also facilitated a World Bank Symposium in Cape Town.

In addition, GEPF received the inaugural Africa Investor

African Pension Fund Initiative of the Year award. The annual

Africa Investor (Ai) Index Series Awards 2013 took place at the

New York Stock Exchange on 21 September 2013. The Awards

are designed to recognise Africa’s best-performing stock

exchanges, listed companies, investment banks, research teams,

regulators, socially responsible companies and fund managers.

GEPF was also awarded the Institutional Investor of the Year

Award in October 2013.

Another highlight was GEPF’s move to its offices in Riverwalk,

which was completed on time and within budget due to the

great co-operation and hard work of everyone involved.

Appreciation

I would like to express my gratitude and appreciation to the

outgoing Board and Chairperson, Mr Arthur Moloto for their

support and dedication over the past four years. In turn, I

welcome the new Chairperson Dr Renosi Mokate and her

Board of Trustees. I am confident that the new Board will bring

renewed vigour to the job and lift the GEPF to its next level in its

pursuit of being a role model for pension funds worldwide and

to fulfil our mission as the custodians of a significant portion of

the wealth of our public servants.

I would also like to take the opportunity to thank the

management and staff for their hard work, dedication and

continued support during the 2013/14 financial year.

Lastly, I would like to thank Mr Elias Masilela for his hard work

and dedication during his three-year tenure as head of GEPF’S

asset manager, PIC. He has not only overseen assets under

management that have grown to more than R1.6-trillion, but

has also been a major driver of the GEPF’s developmental

investment policy. GEPF wishes Mr Masilela all the best with

his future endeavours and looks forward to continuing our

positive on-going relationship with PIC and the Acting CEO, Ms

Matshepo More.

Ms Joelene Moodley

Acting Principal Executive Officer

10

Board of Trustees

Mr Arthur Moloto

• Chairperson of the Board of Trustees

• Chairperson of the Investment Committee

• University of Limpopo: BA (Education)

• University of Limpopo: BA Hons (Development Studies), University of London:

Postgraduate Diploma (Economic Principles)

• Board Chairperson: Pan African Infrastructure Development Fund

• Member of Parliament

• Member: Portfolio Committee on Energy and Auditor-General

• Member of the Institute of Directors

Mr Prabir Badal

• Vice Chairperson of the Board of Trustees and Chairperson of the Finance and

Audit Committee

• National Diploma (Cost and Management Accounting)

• H.Dip Tax: Local and International Tax

• Programme Investment Analysis and Portfolio Management

• National Treasurer: NEHAWU

• Tax Auditor: South African Revenue Service

• Member of the Institute of Directors

28

Major General Dries de Wit

• Chairperson of the Benefits and Administration Committee

• Chief of Human Resource Strategic Direction and Policy of the Department of

Defence, Defence Headquarters

• SA Defence Force Personnel Specialist of the Year

• South African Air Force Individual Productivity Award (Gold) (1996)

• Tertiary qualification (Human Resource Management)

• Member of the Institute of Directors

Mr Kenny Govender

• Deputy Director-General: Human Resource Management and Development,

Department of Public Service and Administration

• Member of the Institute of Directors

Ms Cecilia Khuzwayo

• Chairperson of the Governance and Legal Committee

• B.Com (Law)

• Advanced Coaching Practice: I Coach Academy Middlesex University, UK

• Effective Director Programme: Gordon Institute of Business Science, University

of Pretoria

• Effective Board Leadership: Rotman School of Management, University of Toronto

• Chairperson: National Energy Regulator of South Africa

• Managing Partner: BMK Leadership Coaching Consultants

• Member of the Institute of Directors

29

Mr Mpho Kwinika

• National Diploma (Policing)

• President: South African Police Union

• Chairperson: Sililanabo South African Police Union Trust Fund

• Member of the Institute of Directors

Dr Frans le Roux

• D Com (Economics), University of Stellenbosch

• Former Chairperson: Public Investment Corporation Executive Committee

• Former Deputy Director-General: Financial Management, National Treasury

• Former Chief Executive Officer: Government Employees Pension Fund

• Member of the Institute of Directors

Dr Mary Ledwaba

• BA (Psychology), Cheney University, Pennsylvania, Howard

• MEd (Masters in Educational Administration), Cheney University, Pennsylvania:

• PhD (Sociology), Howard University, Washington, D.C:

• Executive Support: Officer of the Director-General, Department of Defence

• Palama

• Executive board member: South African National Chapter of the African

Association for Public Administration and Management

• Member of the Institute of Directors

30

Ms Fagmeedah Petersen-Lurie

• Fellowship of the Institute of Actuaries, Oxford, United Kingdom (1999)

• Postgraduate Diploma (Management Practice), University of Cape Town Graduate

School of Business

• Fellow of the Actuarial Society of South Africa (2000)

• B. Bus Sc, (Actuarial Science), University of Cape Town

• Investment expert trustee of various commercial pension funds

• Member of the Institute of Directors

Ms Edith Mogotsi

• Executive Development Programme: UNISA

• Advanced Diploma, Public Administration, University of the Western Cape

• Board Effectiveness: Toronto University Canada

• Certificate Course: Economic Development, University of the Western Cape

• Investment and Financial Management: Johannesburg Finance College

• Member of the Institute of Directors

• Member of Investment Committee (GEPF)

• Member of Benefits and Administration Committee (GEPF)

• Member of Policing Chamber (SASSETA)

• Former Chairperson and former Deputy Chairperson of SASSETA Policing Chamber

• Former member of SASSETA Board

• Former member of PSCBC

• Former member of SSSBC

• Former member of Bid Evaluation Committee: SASSETA

• Former member Provincial Victim Empowerment Programme: North West Province

• Former member of Steering Committee No Violence Against Women and Children

• National Executive Member: Police Music and Cultural Association

Awards/certificates:

• Pretty Shuping Award: “A women of substance”: (POPCRU)

• Best Women Achiever in the province and in the Country: North West Province.

31

Ms Gladys Modise

• BCom (Hons) Financial Management – University of North West

• BCom – University of North West

• Diploma in Management – University of North West

• Member of the Institute of Directors

Ms Moira Moses

• BA, University of Witwatersrand

• Management Advancement Programme, Wits Business School

• GEPF Board Trustee and Independent REMCO Committee

• Public Investment Corporation, Non-Executive Director, Chairman of the

Properties Committee, Member of the Human Resources and Remuneration

Committee, Audit and Risk Committee, , Investment Committee and Director’s

Affairs Committee

• Thusanang Trust, Director

• Kansai Plascon, Non-Executive Director

• Member of the Institute of Directors

Ms Marion Mbina-Mthembu

• BCom (Cost and Management Accounting and Business Administration)

• Associate Cost and Management Accountant: Institute of Cost and Management

Accountants

• Head of Department: Eastern Cape Provincial Treasury

• Member of the Institute of Directors

32

Ms Dorothy Ndlovu

• Diploma in Political Economy – University of Western Cape

• Junior Management Development Programme – Technikon SA

• National Treasurer at Hospersa

• Senior Finance Clerk at Charlotte Maxeke Hospital

• Chairperson of PSI Women`s Committee in SA

• FEDUSA NEC and FINCOM member

• Member of the Institute of Directors

Mr Pierre Snyman

• Chairperson of the Public Servants Association of SA (2012 – Current)

• Director of the Public Servants Association of SA (2009 – Current)

• Chairperson PSA National Branch for Correctional Services (2005 – Current)

• Former Secretary of the CSP Board

• Former board member of MEDCOR

• Member of the Institute of Directors of SA

Mr Edward Kekana

• Senior Certificate

• Secondary Teachers Diploma

• Certificate Programme in Human Resource Management

• Advanced Certificate in Education

• Provincial Chairperson - Sadtu Gauteng Province

• Member of Sadtu National Executive Committee

• Member of Sadtu International Relations Committee

• Director at Sadtu Curtis Nkondo Professional Development

• Member of Cosatu Retirement Funds

• Director In The Africa Regional Committee On Juche Studies

• Member of the Institute of Directors in Southern Africa

33

Independence of Board members

Board members serve on the Board of Trustees at GEPF for a

period of four years, whereafter a new Board is constituted.

Eight Trustees are nominated through the Minister of Finance

and six are nominated through the Public Service Co-ordinating

Bargaining Council (PSCBC) process.

An independent election is run to elect one Pensioner member

and one member of the SANDF and Intelligence Community to

the Board.

All Board members are considered to be equivalent to non-

executive directors by virtue of their arms-length relationship

with the Fund. The Board meets quarterly and is not involved in

the day-to-day running of the Fund.

Currently GEPF has Board members who have served on the

Fund’s Board for a period of eight years and have been re-

appointed to the Board to serve a third term. Trustees are

consistently reminded of their fiduciary duty to act

independently and in the best interest of its members and

pensioners.

11

Corporate Governance

Good governance and ethical behaviour provide the foundation

for GEPF to realise its aspiration to be a role model for pension

funds worldwide.

GEPF complies with the requirements of the GEP Law and Rules,

and also looks to the Pensions Fund Act for best practice where

the two are not in conflict. GEPF is committed to transparency,

integrity and accountability based on accepted corporate

governance principles and practices.

The Board governs the Fund – it is accountable for

administrative and investment performance. The Board is also

responsible for compiling and approving the annual financial

statements, which are presented to Parliament by the Minister

of Finance.

According to the GEP Law, fiduciary responsibility for the Fund

rests with the Board of Trustees. The Law requires that the Board

be appointed for a four-year term, after which it must make

way for a new Board. The Minister of Finance inaugurated the

current Board on 22 September 2009 and its four-year term of

office ran until September 2013. However, the Board term was

extended and the new Board of Trustees had its first inaugural

meeting on 17 April 2014.

In line with the GEP Law, the Board consists of 16 Trustees, led

by an elected Chairperson and Vice Chairperson. Each Trustee

has an elected or appointed substitute, ensuring full and proper

representation at all times.

Board composition

Trustees are appointed in accordance with Section 6 of the

GEP Law. Eight employer and eight employee nominees are

represented on the Board. The employee nominees includes

a pensioner elect and a SANDF and Intelligence Community

representative, elected through a postal ballot.

35

“Good governance and ethical behaviour provide the foundation for GEPF to realise its aspiration to be a role model for pension funds worldwide.”

Employee representatives on the Board of Trustees

Nominee Trustee Substitute Trustee

Department Name Department Name

National Education, Health and

Allied Workers Union

Prabir Badal National Education, Health and

Allied Workers Union

Pulani Mogotsi

South African Democratic

Teachers Union

Thobile Ntola South African Democratic

Teachers Union

Edward Kekana

Health and Other Service

Personnel Trade Union

Dorothy Ndlovu Health and Other Service

Personnel Trade Union

Success Mataitsane

South African National Defence

Force

Dries de Wit South African National Defence

Force

Itumeleng Mahlwele

Public Servants Association Vacant Public Servants Association Pierre Snyman

South African Policing Union Mpho Kwinika South African Policing Union Petrus Ntsime

Police and Prisons Civil Rights

Union

Edith Mogotsi Police and Prisons Civil Rights

Union

Vacant

Pensioner Frans le Roux Pensioner Hennie Koekemoer

Table 11.2: Employee representatives on the Board of Trustees

Employer representatives on the Board of Trustees

Nominee Trustee Substitute Trustee

Department Name Department Name

National Treasury Marion Mbina-Mthembu National Treasury Vacant

Department of Public Service

and Administration

Kenny Govender Department of Public Service

and Administration

Vacant

National government Arthur Moloto National government Valerie Rennie

Department of Education Vacant Department of Education Gladys Modise

Department of Defence Mary Ledwaba Department of Defence Vacant

PIC Moira Moses PIC Vacant

Specialist Trustee Cecilia Khuzwayo Specialist Trustee Vacant

Specialist Trustee Fagmeedah Petersen-Lurie Specialist Trustee Jeremy Andrew

Table 11.1: Employer representatives on the Board of Trustees

36

Skill, knowledge and experience of Trustees

According to Section 4.1.2 of the GEP Rules, at least one of

the eight employer-nominated Trustees must have expertise in

financial management and investments, or the management

and organisation of pension funds in general. Two independent

specialists currently serve as Trustees, supported by two

independent specialist substitute Trustees. The other Trustees

and their substitutes have a range of skills, knowledge and

experience necessary to effectively manage and govern the

Fund. The profiles of the 16 Trustees are reflected on pages 27

to 33.

The Governance Charter

The Board is governed by a Governance Charter derived from

sources that include the GEP Law and Rules, Good Governance

on Retirement Funds (Circular PF130, issued by the Financial

Services Board) and King III. The Charter is reviewed annually

to ensure that it is up to date with corporate governance best

practice locally and internationally.

The Charter includes a Trustee code of conduct and ethics,

Trustee Fit and Proper guidelines, Trustee responsibilities,

Trustee development and training, Board and Trustee

performance assessments, Board remuneration and expenses,

Media Policy, Confidentiality Policy, Conflict of Interest Policy,

Compliance Policy, Risk Policy and Framework, committee terms

of reference and rules on the delegation of authority.

Board meetings

The Board has a formal meeting schedule and meets at least

four times a year, with additional meetings when required.

Two-thirds of the Board members must be present at a meeting

to ensure a quorum. Board members are provided with detailed

documentation at least a week before a meeting to ensure

that they are well prepared and can make informed decisions.

Issues are debated openly at meetings and decisions are taken by

mutual agreement. The majority of Trustees present at a

meeting may request that voting takes place using secret ballots.

The Board, supported by the Principal Executive Officer and the

executive management team, meets annually to discuss and

agree on the Fund’s long-term strategies. This discussion takes

place over two days to ensure that Board members fully apply

their minds to the strategic direction of the Fund.

Board training and development

GEPF’s Training and Development Policy prescribes that all newly

appointed Trustees must receive induction training. This is done

over two days and focuses on governance issues, benefits and

rules, investment policies, actuarial valuations and the main

service providers of the Fund.

All Trustees must also attend an accredited Director’s or Trustee

Development Programme within six months of being appointed.

Three compulsory training events are organised annually and

Trustees are also invited to attend various retirement fund,

governance or investment-related conferences and training

sessions.

37

“All Trustees must also attend an accredited Director’s or Trustee Development Programme within six months of being appointed.”

Board Committees

Table 11.3: Board Committees

38

Board committee membership, responsibilities and highlights

Benefits and Administration Committee

Committee Members Dries de Wit (Chairperson)

Jeremy Andrew

Kenny Govender

Johan Griesel

Edward Kekana

Mary Ledwaba

Frans le Roux

Pulani Mogotsi

Edith Mogotsi

Hans Murray

Thobile Ntola

Responsibilities Reviews all aspects of the GPAA’s administration activities

Monitors compliance with the SLA between GEPF and the GPAA

Advises and makes recommendations about GEPF benefits, administration of its affairs, administration

policies, strategy, procedures and management

2013/14 highlights Facilitated the endorsement of amendments to the Administration of Death Benefits Policy

Facilitated a revision of the Media Policy

Facilitated a revision of the Pension Increase Policy

Facilitated the 2013/14 pension increase

Facilitated the approval of various rule changes such as Market value Adjustment on transfer values, child

pension, discharge benefit anomaly and Guardian Fund

Table 11.4: Benefits and Administration Committee

39

Finance and Audit Committee

Committee members Prabir Badal (Chairperson)

Dries de Wit

Edward Kekana

Hennie Koekemoer

Fagmeedah Petersen-Lurie

Itumeleng Mahlwele

Success Mataitsane

Pulani Mogotsi

Gladys Modise

Peter Ntsime

Responsibilities Gives effect to GEPF audit and financial policies and audit strategies

Reviews all aspects of GEPF audit and financial activities

Advises and makes recommendations about financial reporting, appointment of auditors, internal auditing,

risk policies and procedures, and annual financial statements

2013/14 highlights Facilitated and approved the Fund business plan and budget in line with the Board’s strategy for 2013/14

Facilitated the revision of the Enterprise wide Risk Management Policy and Framework

Facilitated the approval of the Audit Planning Memorandum

Facilitated the approval of the costs associated with the tender for the independent election process run

through EISA to elect a pensioner trustee and a Forces Member

Facilitated the approval of the budget in respect of the GEPF move to a new premises

Facilitated the approval of the Annual Financial Statements for the 2012/13 financial period

Facilitated the approval for the budget over the MTEF period of the entire GPAA Modernisation Budget

Facilitated the approval of the Revised Risk Registers

Facilitated the approval of the Revised Subsistence and Travel Policy

Facilitated the approval of an impairment and the adjustment to fair value as recommended by the

Impairment Committee

Table 11.5: Finance and Audit Committee

40

Governance and Legal Committee

Committee members Cecilia Khuzwayo (Chairperson)

Kenny Govender

Johan Griesel

Hennie Koekemoer

Mpho Kwinika

Itumeleng Mahlwele

Success Mataitsane

Thobile Ntola

Peter Ntsime.

Responsibilities Gives effect to GEPF’s governance and legal policies and strategies

Reviews all aspects of GEPF’s governance, risk and legal activities

Advises and makes recommendations about GEPF’s code of conduct, Board committees and terms of

reference, induction, remuneration, evaluation, corporate governance matters, social and ethics practices,

risk management, legal functions, dispute resolution, legislation and amendments to GEP Law and Rules

2013/14 highlights Organised formal training sessions for the Board

The majority of Trustees and their substitutes completed fit and proper questionnaires

The majority of Trustees and their substitutes completed financial disclosures and Fit and Proper

Questionnaires

Facilitated the approval of the Board Performance Assessment Action Plans

Facilitated the review of the Promotion of Access to Information Manual;

Facilitated an amendment to the Insider Trading Policy

Facilitated an amendment to the PEO Delegations of Authority Policy

Facilitated the approval of the King III and PF130 action plans

Table 11.6: Governance and Legal Committee

41

Investment Committee

Committee members Arthur Moloto (Chairperson)

Jeremy Andrew

Prabir Badal

Cecilia Khuzwayo

Mpho Kwinika

Frans le Roux

Fagmeedah Petersen-Lurie

Marion Mbina-Mthembu

Gladys Modise

Edith Mogotsi

Responsibilities Gives effect to investment policies and strategies

Reviews all aspects of GEPF investment activities

Implements and gives oversight to the Fund’s policy and commitment to UN-PRI

Monitors investment mandates

Advises and makes recommendations about asset management, investment policies and strategy

2013/14 highlights Facilitated additional Private Placement Memoranda in the Economic Infrastructure and Rest of Africa Equity

Fund

Facilitated the Sponsorship of the JSE GEPF Investor Showcase

Facilitated the approval of the Framework for the Nomination of Nominee Directors to Investee Company

Boards with the GEPF Listed Assets Portfolio

Facilitated the approval of the Developmental Indicators Proposal and the summary of the Key Principles of

the Fund

Facilitated the approval of the Sponsorship to become a platinum sponsor for the Principles for Responsible

Investment – UNPRI In-Person event

Table 11.7: Investment Committee

42

Remuneration Committee

Committee members Bernard Nkomo (Chairperson)

Michael Olivier

Basetsane Ramaboa

Johan Griesel

Kenny Govender

Moira Moses

Andries de Wit

Responsibilities Adopt remuneration policies and practices that promote the strategic objectives of the Fund and encourage

individual performance over the long term

Determine remuneration packages appropriate to attract, retain and motivate high-performing senior

executives

Annually review whether the objectives of the Remuneration Policy have been achieved

Annually review the principles and levels of Trustee remuneration

2013/14 highlights Facilitated bonus payments for the GEPF 2013/14

Facilitated the adoption of the Human Resource Strategy

Facilitated the approval of an increase in Trustee Remuneration

Facilitated the approval of the Remuneration Policy

Facilitated the approval of the Performance Management Policy

Facilitated the approval of a Trustee Retainer Fee

Facilitated the approval of staff salary increases for the 2014/15 period

Table 11.8: Remuneration Committee

Impairment Sub-committee

Committee members Jeremy Andrew (Chairperson)

Fagmeedah Petersen-Lurie

Frans le Roux

Responsibilities Oversee the valuation of unlisted investments and consider and recommend to the Board any impairment to

these investments.

2013/14 highlights Facilitated the approval of the impairment of unlisted investments and the adjustment to fair value for the

2012/13 financial year.

Table 11.9: Impairment Sub-committee

43

Board of Trustees Board & special Board

meetings

Benefits & Administration

Committee

Finance & Audit

Committee & special Meetings

Governance & Legal

Committee

Investment Committee

Remuneration Committee

Board training, strategic

planning & other

workshops

Meetings/

training sessions held

7 4 8 4 4 4 3

Arthur Moloto

(Chairperson)

7 3 1

Prabir Badal

(Vice Chairperson)

7 8 4 3 2

Jeremy Andrew * 1 4 3 1

Rashied Daniels # 3 1 2 2

Dries de Wit 7 4 8 4 3

Kenny Govender 5 2 1 2 2

Johan Griesel * 3 1 3 0

Edward Kekana * 6 4 8 2

Cecilia Khuzwayo 7 1 4 4 1 2

Hennie Koekemoer * 2 2 2

Mpho Kwinika 6 1 4 3 2

Frans le Roux 7 4 3 4 3

Mary Ledwaba 7 2 2 3 2

Itumeleng Mahlwele * 1 8 4 3

Success Mataitsane * 8 3 3

Marion Mbina

-Mthembu

7 4 2

Gladys Modise * 4 3 1 1

Edith Mogotsi 6 4 3 4 2

Pulani Mogotsi * 4 7 1

Moira Moses 6 1 3 0

Makhubalo Ndaba ** 1 3 2 2 3

Dorothy Ndhlovu 7 3 5 2

Table 11.10: Board of Trustees

44

*Indicate substitute Trustees

# Indicates resignations during the reporting period

• Daniel Teffo 13/05/2013

• Adv Rashied Daniels October 2013

• Fagmeedah Petersen-Lurie 10/02/2014

** Indicates appointments during the reporting period

• Makhubalo Ndaba 14/05/2013

The new appointed Trustees also successfully attended induction training.

Board of Trustees Board & special Board

meetings

Benefits & Administration

Committee

Finance & Audit

Committee & special Meetings

Governance & Legal

Committee

Investment Committee

Remuneration Committee

Board training, strategic

planning & other

workshops

Bernard Nkomo

(REMCO)

3 4 0

Thobile Ntola 1 1 1 0

Peter Ntsime * 1 6 3 2

Michael Olivier

(REMCO)

0 3 0

Fagmeedah Petersen

-Lurie #

5 4 1 2

Basetsane Ramaboa

(REMCO)

0 2 0

Valerie Rennie * 0 0

Pierre Snyman * 3 3 7 3

Daniel Teffo *# 0 0

Table 11.10: Board of Trustees (continued)

45

Trustee remuneration

According to the GEP Law, Trustees are compensated for their

services and expenses on the basis determined by the Board. The

Board had revised its Trustee Remuneration Policy to allow for

the payment of a meeting fee as well as an annual retainer fee

during the reporting period. The revised Trustee Remuneration

Policy has the following principles:

• all Trustees must receive the same level of remuneration,

regardless of experience and expertise;

• remuneration will be paid in the form of per diem

meeting fees as well as an annual retainer fee;

• a retainer fee will be paid to Trustees as well as Substitute

Trustees due to the fact that Substitute Trustees

participate in Board Committees and other events such as

Board Strategic Planning Sessions and Training;

• different retainer fees will be paid to Trustees, Substitute

Trustees, Chairpersons of Board Committees, the Vice

Chairperson of the Board and the Chairperson of the

Board;

• the annual retainer fee will be paid in four equal parts at

the end of each quarter;

• Trustees/Substitute Trustees must attend at least 75% of

relevant meetings during a financial year to qualify for the

retainer fee. Only meetings scheduled in accordance with

the approved annual Board programme will be utilised to

establish if a Trustee/ Substitute Trustee has attended the

required meeting rate.

• meeting fees incorporate pre-meeting preparation,

research, the length of the meeting and post-meeting

follow-up;

• remuneration is proportional to the time, involvement and

responsibility of each Trustee such that those serving on

the main Board and several committees or chairing

committees are paid more than those who are members

only of the main Board;

• independent Trustees should not ordinarily be

commissioned to undertake professional work as this may

result in a conflict of interest, and may not be in the

interest of good corporate governance;

• travel, accommodation and other agreed reasonable

expenses incurred by Trustees should be governed by

policy and proof of expenditure, and be subject to

maximum amounts;

• Trustees, in consultation with their principals, may elect to

have their remuneration paid to them as individuals or to

their principals. They may also choose not to receive

remuneration; and

• the annual amount of remuneration paid to each Trustee,

and to whom the remuneration was paid, should be

disclosed in the annual report.

The Trustee Remuneration policy requires that remuneration

amounts be disclosed in the Fund’s annual report, as has been

done in the following table.

“The Board had revised its Trustee Remuneration Policy to allow for the payment of a meeting fee as well as an annual retainer fee during the reporting period.”

46

Remuneration paid for the 2013/14 period

Name Remuneration Subsistence and travel claims

Mr A Moloto (Chairperson) None 8 322

Mr P Badal (Vice Chairperson) 259 630 None

Mr J Andrew 93 327 None

Adv R Daniels 71 808 10 326

Maj Gen AL de Wit 291 103 None

Mr K Govender None None

Mr J Griesel None None

Mr E Kekana 174 240 4 612

Mrs C Khuzwayo 183 339 6 390

Mr H Koekemoer 50 600 None

Mr M Kwinika 148 104 None

Dr F Le Roux 229 909 7 590

Dr ML Ledwaba 151 008 None

Mrs F Petersen-Lurie 116 537 22 567

Ms II Mahlwele 133 886 22 117

Mr M Mataitsane 90 975 6 400

Ms M Mbina-Mthembu 147 699 None

Ms G Modise 87 432 776

Mrs GE Mogotsi 161 146 None

Mrs P Mogotsi 90 605 None

Mrs M Moses 129 694 2 821

Adv. M Ndaba 88 282 7 585

Mrs ND Ndhlovu 133 778 27 373

Mr T Ntola 32 155 None

Mr P Ntsime 102 251 21 710

Mr P Padayachee None None

Ms V Rennie None None

Mr P Snyman 165 422 1 678

Adv D Teffo None 1247

Mr B Nkomo (REMCO) 98 283 None

Mr M Olivier (REMCO) 73 110 None

Mrs B Ramaboa (REMCO) 43 658 1 574

Total paid 2013/14 R 3 347 981 R 153 088

Table 11.11: Remuneration paid for the 2013/14 period

47

Board Performance Assessment

The Board’s term was extended from September 2013 to April

2014 and no formal assessment of the Board took place during

the period 2013/14.

King III and PF130 compliance

GEPF conducted an assessment of its current governance

practices against the recommended principles and practices

contained in King III as well as PF130. The comparison was

divided into full, partial and non-compliance. GEPF also

identified certain recommended practices that it will not apply

but it has provided the reasons for not doing so.

A detailed action plan was drafted and adopted by the Board to

ensure that GEPF fully complies with King III and PF130. GEPF

has started implementing the action plans and managed to

increase its compliance to both King III and PF130 during the

year under review.

Financial management and control

Through the Finance and Audit Committee, Internal Audit and

Corporate Services, a high-level review of the internal financial

controls took place during the previous financial year and

continued during this financial year as an on-going project to

enhance these controls.

The Fund’s business plan and budget is prepared annually and

approved by the Board. Regular reviews and monitoring of

capital and operational expenditure, as well as cash flow

projections, take place throughout the financial year to ensure

sound financial control.

There is on-going engagement with the independent external

auditors and Internal Audit on the results of their audits into the

financial affairs of the Fund, as well as management’s input. This

engagement provides an opportunity to assess the effectiveness

of the internal financial controls going forward.

The financial management and financial reporting of GEPF has

been outsourced to the GPAA. The Finance division of the GPAA

manages the financial resources available to administer pensions

and other benefits using best practice principles.

This division also prepares the financial statements for GEPF

and ensures that an appropriate procurement and provisioning

system is maintained that is fair, equitable, transparent,

competitive and cost-effective, in line with best practice.

The core aspects of financial management and reporting

outsourced to the GPAA include:

• general ledger and cash flow management;

• financial reporting and management of the year-end audit

process;

• review and updating of accounting policies to ensure

compliance with the relevant legislation/framework;

• accounts receivable, tax and unclaimed benefits

management;

• management of the bank account of GEPF (relating to

operational expenses); and

• assisting GEPF with its budgeting process and reporting

on variance analysis.

The Fund’s annual financial statements are prepared in

accordance with the Regulatory Reporting Requirements for

Retirement Funds in South Africa prescribed by the Financial

Services Board (FSB). The Board of Trustees is responsible for

the financial statements of the Fund and is satisfied that they

fairly present the financial position, performance and cash flows

of the Fund as at 31 March 2014. It is the responsibility of

the external auditors to independently audit the financial

statements.

“The financial management and financial reporting of GEPF has been outsourced to the GPAA.”

48

“GEPF will monitor and disclose its ethical challenges and rewards to its Governance and Legal Committee and the Board, and will disclose these in its annual report in future.“

Ethics and the management of GEPF’s ethical risks

King III prescribes that, “the board should provide effective

leadership based on an ethical foundation”. GEPF subscribes to

King III and is in the process of integrating and embedding King

III into its organisational structures.

A risk assessment has been conducted that involved key

stakeholders such as GEFP staff, the Board and key service

providers, and the results of the risk assessment have been

included in GEPF’s overall risk register. The risk assessment

has been utilised to build on GEPF’s current Code of Ethics for

the Board and a Staff Code of Ethics. An Ethics Charter will be

developed to ensure an ethical relationship between GEPF and

its service providers.

GEPF will monitor and disclose its ethical challenges and rewards

to its Governance and Legal Committee and the Board, and will

disclose these in its annual report in future.

These challenges include ensuring that GEPF:

• acts in good faith and in the best interests of the Fund

and the members, pensioners and beneficiaries;

• acts in good faith and co-operates with the sponsor of

the Fund;

• maintains the required prudence and acts with reasonable

care when dealing with Fund-related matters;

• acts with skill, competence and diligence;

• acts as a “fit and proper” Trustee;

• maintains the required independence and acts

objectively, avoiding conflicts and perceived conflicts of

interest, avoids dealing in matters pursued for self gain

and not in the interest of the Fund, and avoids the

acceptance of gifts which would reasonably be expected

to affect its loyalty;

• abides by all laws, rules and regulations applicable to the

Fund;

• maintains fair, objective and impartial dealings with

members, pensioners and beneficiaries;

• remains vigilant and consistent in adhering to the Vision

and Mission of the Fund;

• maintains confidentiality in line with the Fund’s

Confidentiality Policy;

• communicates with all stakeholders, specifically members,

pensioners and beneficiaries in a timeous, accurate and

transparent manner at all times;

• adheres to principles of risk management;

• strives to attend all meetings and sub-committee

meetings;

• refrains from soliciting reward and accepting gifts and

favours in any manner other than in terms of the Fund’s

policies; and

• conducts regular reviews of the Investment Policy

Statement to ensure effective and efficient management

of the Fund’s assets and the general performance of the

Fund, including the performance of its service providers.

Legal and Compliance

Compliance with legislation and regulatory requirements

The Board of Trustees of GEPF is committed to complying

with all applicable legislation and regulations, and is kept

informed of changes to standards, codes and relevant sector

developments that could potentially affect the Fund and its

operations. The Board of Trustees also requires all business

units, the GPAA and PIC to conform with laws and regulations

applicable to the Fund. For the period under review, the Board

is satisfied that the Fund has complied with the substance of the

principles embodied in King III.

49

Internal Audit Report for the year ended 31 March 2014

In line with the King III Report on Corporate Governance

requirements, Internal Audit provides Management and the

Board, through the Finance and Audit Committees, with

assurance that internal controls are adequate and effective.

This is achieved by means of a risk-based audit plan that

caters for the evaluation of governance, risk management and

controls through the identification of process control gaps and/

or weaknesses for corrective action and improvement.

The Fund’s Internal Audit Unit functionally reports to the

Finance and Audit Committee, with administrative reporting lines

to the Fund’s Principal Executive Office to promote strengthened

independence. These reporting lines were maintained

throughout the financial year and Internal Audit was able to

discharge its responsibilities in line with the charter, which was

approved by the Finance and Audit Committee.

The Internal Audit Unit carries a mandate of effectively

discharging its responsibilities in contributing to the achievement

of the Fund’s objectives by:

• assisting management in evaluating their processes for

identifying, assessing and managing the key operational,

financial and compliance risks of GEPF;

• assisting management in evaluating the effectiveness of

internal control systems, including compliance with

internal policies;

• recommending improvements in efficiency to the internal

control systems established by management;

• keeping abreast of new developments affecting GEPF’s

activities and in matters affecting internal audit work; and

• being responsive to GEPF’s changing needs, striving for

continuous improvement and monitoring integrity in the

performance of its activities.

The Finance and Audit Committee approved the Internal Audit

Annual Plan. A number of challenges were encountered during

the 2013/14 financial year and, as a result, only 52% coverage

of the approved plan (translating to 11 out of 21 planned audits)

was achieved through audits conducted by GEPF’s internal audit

team, our co-sourced service provider, and the administration

agency. Out of the remaining audits, a total of three were in

progress as at 31 March 2014, with the remaining seven audit

projects being rolled over to the 2014/15 financial year.

Below is a summary of audit projects carried out in line with the Fund’s 2013/14 Internal Audit Plan:

• Human Resources and Payroll review

• Finance review

• Marketing and Communication review

• Stakeholder Management

• The GPAA and GEPF Mandate and SLA

Review

• Fraud and Forensic Management Review

• Investment Strategy and Investment

Asset Liability Model Review (Actuarial)

• Benefits Review

• Member Accounts Management Review

• Legal and Compliance

• Occupational Health and Safety review

In line with King III requirements on combined assurance, GEPF embarked on a process of developing a combined assurance plan with the

objective of ensuring optimal assurance for risks as identified through the ERM process. To this end, the Internal Audit unit has, together

with other stakeholders, conducted robust sessions relating to the combined assurance plan development to ensure that it is completed

and its initial implementation rolled out in the 2014/15 financial year.

50

“Roles and responsibility for risk management within GEPF have been clearly defined within the GEPF’s Risk Management Policy and Framework.”

GEPF Risk Statement for the year ended 31 March 2014

Introduction

The risk management process assists the Board of Trustees of

GEPF to execute its fiduciary duty to actively manage the risks

that would otherwise affect or prevent GEPF from achieving its

strategic objectives and to ensure the long-term sustainability of

the Fund. The Board of Trustees, through the Finance and Audit

Committee, ensures that effective risk management processes

and procedures are in place to actively manage risk that affects

the Fund’s performance.

Mandate:

The Board of Trustees has committed GEPF to a process of risk

management that is aligned to:

• the requirements of Section 6 and 7 of GEP Law and

Rules;

• the Pension Fund guideline for good governance, known

as PF130, issued by the Financial Services Board;

• codes of good corporate governance, including the King

III code and the code issued by the Committee of

Sponsoring Organisations (COSO) – an internationally

accepted framework for good governance;

• ISO 31000:2009, Risk management – Principles and

guidelines; and

• other relevant legislation.

The Enterprise Risk Management Policy and Framework has

been reviewed and was updated in February 2013 to bring it

in line with ISO 31000:2009, Risk management – Principles and

guidelines. The Finance and Audit Committee, as well as the

Board of Trustees approved the updated policy and framework

in March 2013.

Responsibility

Roles and responsibility for risk management within GEPF have

been clearly defined within the GEPF’s Risk Management Policy

and Framework. The Board of Trustees is ultimately responsi-

ble for ensuring that the Fund effectively manages risk. To this

end, the Board has formally delegated, as defined in the Board

Charter and the Risk Management Policy and Framework, its

oversight role to the Finance and Audit Committee. The Risk

Management Policy and Framework allows for specific risks

to be allocated to the Board subcommittees in line with their

mandate and the specific areas of specialisation of each

committee, and to report on such risks to the Finance and Audit

Committee.

The Finance and Audit Committee has established the Risk

Management Liaison Committee to coordinate risk management

between GEPF, the PIC and the GPAA, who both manage risk on

behalf of the Fund.

The Principal Executive Officer is the Fund’s nominated Chief Risk

Officer and is accountable to the Finance and Audit Committee

to coordinate, embed and report on risk management

performance in terms of the Risk Management Policy and

Framework. The risk management function has been outsourced

to PricewaterhouseCoopers who report directly to the Chief Risk

Officer on risk management activity and performance.

Management is responsible for the day-to-day management of

risks and assisting the Chief Risk Officer as well as the Board

subcommittees with their risk management responsibilities

and ensuring that employees are aware of risk management

procedures in their operational areas.

51

“The various policies implemented by the Board include mechanisms to ensure compliance and continuous improvement.”

Monitoring

The Board identified 18 strategic and 35 operational risks for

the Fund. During the 2013/14 financial year, management

implemented controls and action plans to mitigate these risks.

Progress on risk management actions and controls was reported

to the Executive Management Committee on a monthly basis

and quarterly to the Finance and Audit Committee. Independent

monitoring of the risk management function and progress is

performed by internal audit through a risk-based audit approach,

and assurance was provided that the controls were adequate

and effective in mitigating risk.

Conclusion

The integrity of the GEPF’s financial reporting relies upon a

sound system of internal control and effective risk management

processes. The Board has implemented adequate and effective

policies and procedures covering the risk exposures prioritised

by the Board. The various policies implemented by the Board

include mechanisms to ensure compliance and continuous

improvement. The Board is of the opinion that it has maintained

sound risk management processes, policies and procedures,

and that these have kept the Fund’s risk exposure at acceptable

levels and within GEPF’s risk appetite.

12

The Office of the Principal Executive Officer

The Office of the Principal Executive Officer comprises the

Principal Executive Officer (PEO) and a management team. It

supports the Board of Trustees, ensuring that GEPF acts in the

best interests of its members, pensioners, and beneficiaries. This

office is also responsible for day-to-day operations.

The management structure consists of the Principal Executive

Officer, the Head of Corporate Services, the Head of Investments

and Actuarial, and the Head of the Board Secretariat.

Table 12.1: Board of Trustees

The PEO assists the Board in meeting its fiduciary and oversight

obligations in line with the GEP Law, and other laws and

regulations. The PEO also represents the Board at different

forums (strategic and operational), and has the overall

responsibility for financial reporting and disclosure, consolidating

and amending the Fund’s rules, and valuating liabilities and

assets. The PEO implements all Board decisions and gives effect

to the Board’s strategy. The Risk, Internal Audit, Resources and

Communications Managers support the PEO in this role.

The Head of Investments and Actuarial monitors and manages

GEPF’s assets and liabilities, and is responsible for conducting

actuarial valuations, asset-liability modelling, advising the Board

on investment strategy and execution, and overseeing the

implementation of the Responsible Investment Policy (RI) and

Developmental Policy (DI).

53

“The Office of the Principal Executive Officer supports the Board of Trustees, ensuring that GEPF acts in the best interest of its members, pensioners and beneficiaries.”

Executive management

Ms Joelene Moodley

Acting Principal Executive Officer and Head: Corporate Services

• B Proc, University of Durban - Westville

• LLB, University of Durban - Westville

• LLM Corporate Law, University of Pretoria: LLM

• Advanced Programme in Risk Management, Unisa

• Board Member of Compliance Institute South Africa

Mr John Oliphant

Principal Executive Officer and Acting Head: Investments and

Actuarial

• BSc (Actuarial Science), Wits University

• BSc (Hons) Advanced Mathematics and Finance, Wits

University

• Board member of the United Nations supported Principles

for Responsible Investment (PRI)

• Board member of the Principal Officers Association

• Chairman of the PRI South African Network

• Chairman of Code for Responsible Investing South Africa

(CRISA)

• Member of the Investment Committee of the Pan African

Infrastructure Development Fund (PAIDF)

• Member of the Investment Subcommittee of the South

African Bureau of Standards (SABS) Board

• Member of the JSE SRI Advisory Committee

The Head of Board Secretariat ensures that the Board practices

good governance at all times, provides guidance to the Board

on the duties of the Trustees, ensures that the Trustees are

adequately inducted and trained, and provides an executive

secretariat function to the Board and its committees.

The Head of Corporate Services manages and oversees the

internal operations and corporate services within the Office of

the Principal Executive Officer. This includes the management of

legal and compliance, finance and facilities management.

54

Ms Adri van Niekerk

Head: Board Secretariat

• BAdmin Public Management, University of Pretoria

• Honours Degree in Public Management, University of

Pretoria

• Member of the Integrated Reporting Committee of South

Africa

• Member of the Institute of Directors

• Member of the International Corporate Governance

Network (ICGN)

• Member of the Global Reporting Initiative (GRI)

Mr Hemal Naran

Head: Investment and Actuarial

• BCom University of Witwatersrand (Actuarial Science and

Insurance and Risk Management)

• Investment Management Certificate from the CFA Society

of the UK

• Chartered Alternative Investment Analyst (CAIA) Charter

Holder

• Member of the Investment Committee of the Pan African

Infrastructure Development Fund (PAIDF)

• Hedge Fund Steering Committee member of the United

Nations Supported Principles of Responsible Investment

(PRI) Initiative

• Social Finance and Impact Investing Committee Member

of the Institute of Actuaries (UK)

55

Progress towards being an employer ofchoice

GEPF regards its employees as valuable assets that enable it

to achieve its broad business objectives. It aims, therefore, to

provide working conditions and benefits that create an optimal

environment for people to give of their best and reach their full

potential in fulfilling their duties to the Fund, the Board, and

broader stakeholder portfolio.

GEPF endeavours to ensure sound employer-employee

relations through fair employment practices and the protection of

employee rights.

GEPF recorded a 16% staff turnover rate during the 2013/14

financial year.

Table 12.2: Board of Trustees

56

Employment equity

The Employment Equity Act, 55 of 1998, was enacted to

help achieve equity in the workplace. This would be achieved

first, by promoting equal opportunity and fair treatment in

employment through the elimination of unfair discrimination.

Second, it would require implementing affirmative action

measures to redress the disadvantages in employment

experienced by specific groups in order to ensure their equitable

representation at all occupational categories and levels in the

workforce.

The Fund’s commitment to employment equity in practice is

evident in the table and figure below. A total of 88% of GEPF

staff, and 87.5% of executive management (i.e. top, senior and

professional) are African, Coloured or Indian. GEPF currently has

five vacant positions that will be filled in the coming financial

year.

Current as at 31 March 2014

Level AFRICAN COLOURED INDIAN WHITE TOTAL Total Filled

Vacant

M F M F M F M F M F

Top Management 1 0 0 0 0 0 0 0 1 0 1 0

Senior Management 0 0 0 0 1 1 0 1 1 2 3 0

Professional - Middle Management 4 2 0 1 0 0 1 0 5 3 8 2

Skilled 1 5 0 0 0 0 0 0 1 5 6 2

Semi Skilled 0 4 0 1 0 0 0 1 0 6 6 1

Unskilled 1 0 0 0 0 0 0 0 1 0 1 0

Total 7 11 0 2 1 1 1 2 9 16 25 5

“A total of 88% of GEPF staff and 87.5% of executive management are African, Indian or Coloured.”

Table 12.3: Employment Equity

57

Employment equity by race and gender

“GEPF endeavours to ensure a meaningful link between the performance of its employees and their remuneration.”

Executive remuneration and performance management

In line with best practice, King III and other codes of good governance, GEPF endeavours to ensure a meaningful link between the

performance of its employees and their remuneration. Performance bonuses are allocated for above-average performance and beyond,

and this is done at the end of the financial year. Ex-gratia payments were not made during the financial year.

Executive remuneration is reflected in the table below:

Total Cost to Company Performance Bonuses

Mr John Oliphant R 2 516 585 -

Ms Joelene Moodley R 1 355 857* -

Ms Adri van Niekerk R 996 396 R 76 493

Mr Hemal Naran ** R458 895 -

Total R 5 327 733 R 76 493

* This amount includes Acting allowance (R276k) as Acting Principal Executive Officer

** Appointed 1 January 2014

Table 12.4: Employment Equity by race and gender

Table 12.5: Executive remuneration

58

13

Stakeholder engagement

Member education and communication

Member, pensioner and beneficiary education and

empowerment remain a priority. The organisation’s

conventional and non-conventional outreach programmes

educate all stakeholders about the various product offerings.

Numerous campaigns were undertaken in the 2013/14 financial

year.

Roadshows

Three roadshows were undertaken in three provinces

during the 2013/14 financial year. Roadshows are beneficial

because they promote communication between the Fund and

its stakeholders and provide opportunities for feedback on

policy and administrative matters. The table below shows the

provincesand municipalities that hosted road shows during the

2013/14 financial year.

DATE EVENT PROVINCE AREAS

20 April 2013 Roadshow KZN 1. Umlazi

2. Ladysmith

3. Richards Bay

22 June 2013 Roadshow North West 1. Mogwase

2. Klerksdorp

3. Makapanstad

24 August 2013 Roadshow Limpopo 1. Makhado

2. Jane Furse

3. Phalaborwa

Table 13.1: Roadshows

Retirement Member Campaign

Another project that is contributing to fewer errors and delays in

receiving exit documentation from employer departments is the

Retirement Member Campaign (RMC). This is aimed at educating

people close to retirement about the processes they need to

follow in order to claim their pension benefits. When members

understand exactly what documents to provide and complete,

and when, they are more likely to follow the right processes,

provide the correct personal information, and even monitor their

employer departments’ progress as well.

The Retirement Member Campaign was launched at the South

African Police Services in KwaZulu-Natal early in the 2013/14

financial year, and was then rolled out in the Eastern Cape,

Kimberley, and Polokwane to other employer departments. The

campaign takes the form of face-to-face information sessions

with members approaching retirement, who also receive a DVD

and brochure in the official language of their preference.

59

“The mobile offices provide the same range and quality of services as any of GEPF’s regional offices or walk-in centres.”

Mobile Offices

Although GEPF has 13 regional offices and walk-in centres

across South Africa, these are in the major cities. Members,

pensioners and beneficiaries in rural areas have not had

sufficient access and have therefore been underserviced. This

started to change in 2013/14 when, following a successful pilot

project in Polokwane, the organisation began deploying mobile

offices in all nine provinces.

The mobile offices provide the same range and quality of

services as any of GEPF’s regional offices or walk-in centres.

Following routes specifically worked out to reach as many

members and pensioners as possible, GEPF visits the most

rural parts of each province, typically targeting high-density

facilities such as clinics, hospitals, and community centres.

Mobile office visits are publicised in advance through flyers, ra-

dio broadcasts and letters to government offices.

While the GEPF was using rented vehicles as mobile offices in

2013/14, dedicated vehicles have been purchased, equipped

and branded post year-end. This will enable the mobile offices

to penetrate rural areas not yet being reached and in so

doing, improve GEPF’s ability to trace people eligible for

unclaimed benefits.

DATE EVENT PROVINCE AREAS

28 August 2013 RMC launch KZN Chatsworth

29 October 2013 RMC workshop Eastern Cape Bisho

29 January 2014 RMC workshop Limpopo Polokwane

24 March 2014 RMC workshop Western Cape Cape Town

Table 13.2: RMC workshops

Employer departments are pivotal to the success of the

campaign, as they provide details of employees approaching

retirement. Customer Relationship Management engages the

Auditor-General, political office bearers and platforms such

as the Forum of South African Directors-General to obtain

their assistance in encouraging the involvement of employer

departments. The table below shows the provinces and

municipalities that hosted RMCs during 2013/14 financial year.

60

14

GEPF Investments

61

Investment policy statement

GEPF’s Investment Policy document is a formal statement of

the main principles underlying the investment strategy of the

Government Employees Pension Fund. It provides a framework

within which the Fund’s management, Investment Committee

and Board of Trustees make investment decisions. It is designed

to:

• communicate the investment philosophy to the

stakeholders and investment managers;

• describe the overall investment objectives, the risk

philosophy, the design of the portfolios and different

mandates, the benchmarks against which performance

will be reviewed, and the risk parameters associated with

each of these portfolios; and

• describe the role of consultants as it relates to

investments, as well as investment managers, in

managing the assets of the Fund.

The principal long-term objectives of the Fund are as follows:

• to provide members and their dependants with the

benefits promised in the Rules;

• to target the granting of full inflationary increases to

pensions. While increases at this level are not promised,

the Trustees aim to provide such increases subject to their

affordability and have set contingency reserves at a level

designed to facilitate such targeting; and

• to keep the employer contribution rate as stable as

possible with any changes to the employer contribution

rate being introduced gradually.

As a very substantial fund within the South African market and

in accordance with its responsibility as a signatory to the United

Nations Principles for Responsible Investment and the Code for

Responsible Investing in South Africa, the GEPF aims to invest

responsibly for the long-term and, therefore, where compatible

with its other objectives, to take account of the social impact

when making investments.

The investment strategy of the Fund has been designed using

a liability-driven approach that takes the liabilities, and other

long-term objectives, into consideration. The allocation of the

Fund between the different asset classes, and how much to

invest in each asset class, as set out in the following table, was

determined after considering expected future benefit payments

of the Fund, the Fund’s financial position, and the risk to that

financial position represented by investing in the underlying

asset classes. It also considers the size of the Fund’s assets in

the context of the South African market, as well as other African

and international markets.

62

Asset class Strategic Asset Allocation Asset Allocation Range

Cash and money markets 4% 0-8%

Domestic bonds 31% 26-36%

Domestic property 5% 3-7%

Domestic equity 50% 45-55%

Africa equity (excl. SA) 5% 0-5%

Foreign bonds 2% 0-4%

Foreign equity 3% 1-5%

Table 14.1: Investment Policy

“The South African economy was subdued, as the benefits of low interest rates continued to be offset by low consumer confidence, rising inflation and poor market sentiment to developing markets.”

Economic and market review

Stock markets enjoyed a strong rise over the last year supported

by loose monetary policy – historically low interest rates and

unprecedented levels of additional liquidity from quantitative

easing (QE) programmes by central banks. It defied logic to

see stock prices driven ahead of earnings growth with riskier,

more speculative areas of the market seeing the biggest rises.

There were periods of volatility, however, due to the uncertainty

surrounding the US “fiscal cliff” – namely, automatic government

spending cuts and the end of tax breaks – and investor fears that

the US Federal Reserve may reduce QE.

While the fiscal cliff was averted in the US, it has simply

pushed tougher decisions further down the road. Fundamental

problems remain in Europe with Eurozone banks likely to face

a new capital black hole. The global economy faces several

headwinds from the uncertainty surrounding the US fiscal

policy, Europe’s debt problems, slowing growth in China and

other emerging markets. The factors creating extreme volatility

in markets since 2007 have not gone away. At some point the

central banks will have to shrink their massive balance sheets,

a long process of normalisation for which there is no historical

precedent and interest rates will have to rise eventually.

The South African economy was subdued, as the benefits

of low interest rates continued to be offset by low consumer

confidence, rising inflation and poor market sentiment to

developing markets. Overseas, the US economy continued

to experience better growth than the Eurozone, where

unemployment was falling and confidence was returning to

housing market. Elsewhere, the Japanese economy remained

unresponsive and the Emerging and Pacific Basin economies

showed some slowdown, with China in particular causing

concern with its significant slowdown in the growth rate.

On the whole, it was a better year for equities and other

return-seeking assets. Developed markets were seen as a safe

haven and enjoyed another good year compared to developing

market economies with the so-called flight to quality.

South Africa’s inflation, as measured by the consumer price

index (CPI) has risen from a trough of 5.3% in November 2013

and finished the year – 31 March 2014 – at 6%, at the upper end

of the Government’s target range of 3-6%. The Monetary Policy

Committee of the Reserve Bank of South Africa raised interest

rates by 0.5% in an attempt to balance the inflation-growth

trade-off.

63

The Rand weakened considerably against the US Dollar and

other major currencies over the year. As a result, the Rand

finished the 12 months to 31 March 2014 down 12.3% against

the US Dollar, down 20% against the British Pound and down

18.4% against the Euro.

After a volatile year, the South African stock market as

measured by the JSE All Share Index rose by 19.8% in capital

terms over the year, which adjusting for income gave a total

return of 23.7%.

Overseas equity markets generally had a positive year, with the

global composite (MSCI World Index) giving a total return of

35.5% in Rand terms. Developed markets led the way with

European (MSCI Europe Index), US (S&P Index), and Japanese

(Topix Index) markets returning 42.9%, 38.9% and 28.2% in

Rand terms.

Broader emerging markets suffered more in common with other

developing markets this financial year, with the MSCI Emerging

Market Index returning 12.2% in Rand terms. Over the same

period, African markets, in aggregate as measured by the FTSE

EFM Index ex SA, returned 23% in Rand terms over the 12

months to 31 March 2014.

Overall, South African bonds produced disappointing returns

over the financial year, with both conventional bonds and

index-linked bonds returning 0.6%. Property returns, as

measured by the FTSE/JSE SA Listed Property Index, were also

disappointing, returning 1% over the year to March 2014.

Investment performance

As at 31 March 2014, GEPF’s assets amounted to R1 423-billion,

an increase of R185-billion from R1 238-billion a year ago.

The total return for the Fund for the year to 31 March 2014

was 15.4% as compared to a benchmark return of 15.6%. Over

the three years ended 31 March 2014, the fund produced an

annualised return of 15.4% (or 53.7%) per annum compared to the

benchmark return of 15.9% (or 55.6%) per annum.

The strategic asset allocation of the Fund is set out in the table

below:

Asset Class Strategic Asset Allocation Asset Allocation as at 31 March 2014

Asset Allocation Range

Cash and money markets 4% 4.8% 0-8%

Domestic bonds 31% 29.7% 26-36%

Domestic property 5% 4.5% 3-7%

Domestic equity 50% 54.3% 45-55%

Africa equity (excl. SA) 5% 0.7% 0-5%

Foreign bonds 2% 1.9% 0-4%

Foreign equity 3% 4.1% 1-5%

Table 14.2: Asset Allocation

64

“GEPF had committed almost R62-billion towards unlisted and developmental investments across a number of sectors.”

It can be seen from the last table that the Fund is invested in

a pro-growth manner, with 63.6% invested in equities and

property, with the remaining 36.4% invested in bonds and cash.

The GEPF also makes unlisted investments across its portfolio.

The reason for making these investments is twofold – firstly

as a large institutional investor, investment in unlisted entities

provides a degree of diversification to the GEPF portfolio, and

secondly, it allows the GEPF to make investments that fit within

the Fund’s Developmental Investment agenda.

The GEPF’s Developmental Investment Policy promotes

investment across four pillars – namely investment in economic

infrastructure, social infrastructure, sustainability and enterprise

development projects, all of which are expected to produce

long-term returns for GEPF’s members and pensioners.

To the end of March 2014, GEPF had committed almost

R62-billion towards unlisted and developmental investments

across a number of sectors. Some notable projects include:

• MainOne – providing data and broadband connectivity to

West Africa

• Dark Fibre – providing fibre-optic connectivity in South

Africa

• Lanseria Airport – independent airport in South Africa

• Southern Farms – Northern Cape exporter of grapes and

dates

• TAV Tunisie – airport in Tunisia

• Socoprim – toll bridge in Abidjan, Ivory Coast

• Aldwych Power – power generation on a Pan-African

basis

• Core Energy – solar energy project in Limpopo

• N3TC – operates and maintains circa 420km of the N3

National Highway

• Just Veggies – vegetable processing plant in

KwaZulu-Natal

• Botshilu hospital – 100-bed hospital in Soshanguve,

Pretoria.

15

Responsible Investment Report

GEPF and active ownership

Responsible investment is not simply a “nice-to-have” list

of things to do that are never acted upon. GEPF has taken a

public and proactive approach articulated in the practice and

application of active ownership and environmental, social,

and governance (ESG) considerations across the entire GEPF

investment portfolio, irrespective of the asset class in which it is

invested. GEPF has made it clear to our stakeholders, irrespective

of whether they are our peers in the investment community, the

entities in which we invest, or the broader South African society,

that it will actively encourage better corporate management of

ESG issues.

Ownership rights have an intrinsic economic value and active

ownership uses various formal and informal elements of such

voting rights to signal, encourage, and request change in the

corporate behaviour of entities in which GEPF has invested

and which support the delivery of long-term investment value.

GEPF’s active ownership approach includes two areas of

involvement: engagement and strategic voting.

GEPF and PIC ESG Working Committee

GEPF’s Responsible Investment (RI) Policy proposed the

establishment of an ESG Working Committee with

representation from GEPF and PIC management. This would

include GEPF’s Head of Investment and Actuarial and PIC’s Chief

Investment Officer and respective ESG teams. The Committee

meets regularly, at least quarterly, to discuss, among other

issues, ESG research, proxy voting, transformation, remuneration

and environmental issues. The Working Committee is dedicated

to constructive engagement with investee companies and seeks

to effect change from within rather than simply voting with its

feet.

GEPF adheres to good corporate governance practices and

codes of conduct in line with the third King Code on Corporate

Governance (King III) and played a pivotal part in the drafting

of the Code for Responsible Investing in South Africa (CRISA).

GEPF, through the PIC and other external fund managers, invests

responsibly through the integration of ESG issues incorporated

into the investment processes and by engaging investee company

management and boards on issues of mutual concern.

GEPF’s leadership in developing the CRISA Code has seen strong

support from almost all well-respected South African fund

managers that, having formally endorsed the principles of

CRISA, are reporting at least annually on their respective

implementation of the five CRISA principles.

The Working Committee’s ESG matrix, a joint venture between

the Centre for Corporate Governance in Africa at the University

of Stellenbosch Business School and the GEPF and PIC,

continued to operate in 2013/14 but will probably be revised in

the next fiscal year.

66

“GEPF believes engagement, both formal and informal, is a tool to manage the risks and opportunities presented by ESG issues.”

Engagement

GEPF, working with its asset managers – including PIC – seeks

to encourage a paradigm shift in investment strategies to focus

on the creation of long-term value for a company’s shareholders

but also importantly for all its stakeholders. It seeks to achieve

a balanced focus on disclosure, compliance and performance

issues by integrating ESG issues within a company’s operations

and ensuring that companies disclose the required information

while also assessing companies’ actual performance and com-

pliance in certain other defined areas of interest to the GEPF as

a responsible investor.

At a formal level, engagement involves dealing with company

managers and directors to signal our concerns, understanding

if and how such concerns are managed, and agreeing to the

necessary steps for improvement. This is done either at company

annual general meetings (AGMs), through voting shares, or

lodging shareholder resolutions.

Informal engagements involve direct correspondence and

meetings with management. In extreme situations where the

informal engagement is unsuccessful, more public approaches

may be considered, such as collaborating with other investors,

issuing public statements or organising shareholder resolutions.

GEPF may also consider engaging with government departments

and regulators to influence policy direction. In extreme situations,

GEPF may choose to divest from a company entirely.

GEPF, however, seeks constructive engagement rather than a

policy of divestment. While GEPF is the single largest investor

in the Johannesburg Stock Exchange, the universe of listed

companies remains at no more than 170 companies, and GEPF

is bound by a requirement to invest 90% of its assets under

management in South Africa. International pension funds

often have many thousands of companies globally from which to

invest and to apply their investment strategies. Any decision by

GEPF to divest would need to take into consideration its bench-

mark index and it would need to be able to achieve similar

investment returns and liquidity elsewhere in order to match

its liabilities. Given GEPF’s relatively small international

allocation limit of 5% – 10% in the rest of Africa and 5%

internationally – disinvestment from specific companies or

sectors is an unlikely strategy for the GEPF to pursue over the

short term given these constraints. Such a divestment strategy,

were it to be applied, would most certainly require GEPF being

able to invest a higher percentage of its assets internationally.

The primary objective of GEPF’s on-going informal engagements

with companies is to protect and enhance investment value

for GEPF members and pensioners over the short, medium and

long term and to improve a company’s level of governance and

corporate behaviour across a broad range of issues including

governance structures, remuneration policy, accountability and

transparency.

GEPF believes engagement, both formal and informal, is a tool

to manage the risks and opportunities presented by ESG issues.

Successful engagement can and should drive change, pushing

companies to behave more responsibly, generating better long-

term financial rewards for investors, more sustainable prospects

for the business, and positive impacts for the labour force,

communities and the natural environment affected by corporate

commercial activities.

During the 2013/14 financial year, GEPF directly engaged with

a total of 25 companies on a variety of ESG issues. Of the 25,

seven of the companies were in the construction industry and

GEPF was following up the process of investigation by the

Competition Commission that revealed some firms had colluded

to create the illusion of competition by submitting sham tenders

(“cover pricing”) to enable a fellow conspirator to win a tender.

The remaining companies that were engaged included six from

the mining sector, three in the financial services industry, two

in telecommunications, two in property, and two industrial

companies. Other sectors engaged included companies in retail,

food production and chemicals.

67

“GEPF’s duty to its members requires it to vote at company annual general meetings.”

Some of the issues addressed during these engagements

included poor performance, inadequate disclosure or reporting

on the following issues:

• Corporate governance

• Remuneration policy

• Director remuneration

• Mergers and acquisitions

• Corporate strategy

• Social issues

• Environmental issues

• Fraud and corruption

• Ethics

GEPF’s duty to its members requires it to vote at company

annual general meetings. Strategic voting, however, differs from

business-as-usual voting activities – approving capitalisation

structures, dividend issuances and issues related to corporate

governance – because it means using voting rights to emphasise

concerns and to request changes in company policy (changes

that would already have been signalled to companies through

informal engagement activities).

For reports on GEPF’s proxy voting activities through PIC, please

refer to the following web link:

http://www.pic.gov.za/?page_id=80

In 2013/14, GEPF voted at 232 shareholder meetings for a total

of 2 911 resolution items. GEPF voted in favour of 2 733 (94%)

resolutions and against 173 (6%) cases. Furthermore, GEPF

abstained on five resolutions during the 2013/14 financial year.

Table 15.1: Proxy vote by results

FOR

ABSTAIN

AGAINST

94%

6%

68

The number of against votes cast numbered 173, which formed 6% of the total resolutions. The bulk of the resolutions GEPF voted

against included remuneration policy (50%), capital structure (32%), and re-election of directors to the audit committee (10%) and

non-executive director fees (4%).

The Fund voted against the approval of share incentive plans in most instances relating to companies’ capital structure (40%). Other

capital structure-related resolutions dealt with issuance of shares for cash (15%) and for the repurchase of shares (15%).

“The Fund voted against the approval of share incentive plans in most instances relating to companies’ capital structure (40%).”

Table 15.2: Breakdown of against votes

Table 15.3: Breakdown of capital structure votes

APPROVAL OF SHARE INCENTIVE PLANS

PLACE SHARES UNDERCONTROL OF DIRECTORS

ISSURANCE OF SHARESFOR CASH

AUTHORITY TO ALLOT SHARESAND OTHER SECURITIES

TO DISAPPLY PRE-EMPTIONRIGHTS

FINANCIAL ASSISTANCE IN TERM SOF SECTION 44 AND SECTION 45 OF T HECOMPANIES ACT

REPURCHASE SHARES40%

12%

15%

15%

8%

2%

8%

69

“GEPF has continued to work closely with the United Nations-supported Principles for Responsible Investment (UNPRI).”

Industry initiatives where GEPF has played a leadership role

GEPF has played a major role in a number of both local and

international ESG and related initiatives where GEPF either led or

was a strategic supporter of the initiative during the year under

review.

Principles for Responsible Investment (PRI)

GEPF has continued to work closely with the United Nations-

supported Principles for Responsible Investment (UNPRI). Being a

signatory to the Principles helped GEPF formalise its investment

policies and research practices relating to ESG issues, requiring

that it take a long-term, holistic approach to risk and return and

ensuring that it gains in-depth knowledge of the companies

in which it invested and understood the ESG issues that are

financially material to each investee company’s business and

strategy. GEPF also serves on the international Advisory Council

of PRI.

To read more about GEPF’s implementation of the six PRI

Principles - GEPF’s annual PRI Reporting and Assessment Survey

is publicly available for review on the PRI website available at

www.unpri.org

PRI in PersonAs a member of the International Advisory Council of PRI, GEPF

was instrumental in bringing the seventh annual PRI in Person

2013 to South Africa, and provided delegates with a number of

responsible investment side events that were staged around the

conference.

PRI in Person 2013, the signatory investor event of the United

Nations-supported Principles for Responsible Investment (PRI),

was held at the Cape Town International Convention Centre

(CTICC) on 1-2 October 2013. It was an opportunity for

signatories – and potential signatories – to meet, collaborate

and learn from their peers while engaging in debate with experts

and thought leaders. The former Minister of Finance, Minister

Gordhan, provided the opening keynote address to delegates and

GEPF’s Principal Executive Officer, Mr John Oliphant, delivered

the closing speech giving a clear indication of South Africa’s

support for the global PRI initiative.

Apart from the two full days packed with solution-seeking

roundtables, thought-provoking sessions, peer-to-peer

dialogues, and with plenty of time to network, there were a

number of additional events that delegates attended.

PRI, STANLIB Asset Management and GEPF offered a limited

number of investor delegates a chance to visit the mining

operations of Lonmin and Impala Platinum, in Rustenburg. The

visit was preceded by a forum that debated issues surrounding

mining including regulation, governance and labour followed

by a site visit the following day where local and international

investor representatives were able to descend a platinum mine

shaft and do a site inspection of mining operations, including

visiting mine employee housing villages. On 30 September 2013,

the Johannesburg Stock Exchange (JSE) and GEPF in collaboration

with the PRI, held an ESG investor briefing showcasing

constituents of the JSE’s Socially Responsible Investment Index.

JSE SRI Index companies shared their company prospects, with

reference to how they integrate ESG and other sustainability

considerations within their company strategy and operations.

70

“GEPF’s responsible investment report competed against others from Australia, Canada, France, the Netherlands, New Zealand, Norway and Sweden”

RI Reporting Awards 2014

The Government Employees Pension Fund was jointly honoured

with a Commended, Best RI Report by a Large Fund at the

annual Responsible Investment Reporting Awards 2014 at RI

Europe 2014 in London.

GEPF’s 2013 Annual Report had close to 10 pages of reporting

on the ESG implementation activities of its team led by ESG

Manager Mr Adrian Bertrand. Judges said that the “strongest

aspects of this report are the clarity of its commitment to

responsible investment and to economic development in South

Africa and Africa more generally”.

GEPF’s responsible investment report competed against others

from Australia, Canada, France, the Netherlands, New Zealand,

Norway and Sweden for the prestigious award in the large

pension funds sector — those with assets under management

greater than €25-billion. GEPF shared the commended honour

with the Canadian Pension Plan Investment Board (CPPIB).

GEPF Chairperson Dr Renosi Mokate accepted the commendation

on behalf of GEPF and said it was an affirmation of the Fund’s

commitment to responsible investment and reflected how it

systematically integrated all material ESG issues into its

traditional financially driven investment decision-making

processes.

The RI Reporting Awards 2014 showcases excellence in

responsible investment and environmental, social and

governance (ESG) reporting and is intended to encourage best

practice and transparency by recognising the highest standards

in the disclosure of responsible investment (RI) activities by asset

owners globally.

Code for Responsible Investing in SA (CRISA)

CRISA gives guidance on how the institutional investor should

execute investment analysis and investment activities and

exercise rights so as to promote sound governance.

CRISA recommends that the institutional investor should

incorporate sustainability considerations, including environ-

mental, social, and governance (ESG) issues, into its investment

analysis and investment activities as part of the delivery of

superior risk-adjusted returns to the ultimate beneficiaries.

Institutional investors are requested to consider a collaborative

approach to promote acceptance and implementation of the

principles of CRISA and other codes and standards applicable to

institutional investors.

CRISA adheres to a voluntary governance framework and,

like the King III Report, this set of principles and practices is

compiled on an “apply or explain” basis. The CRISA Committee

has issued a practice note that provides guidance to institutional

investors on how best to disclose on the application of CRISA.

The practice note was developed by a working group of the

CRISA Committee that included GEPF’s ESG Manager.

The code recommends that all disclosures take place not only

in the integrated annual report but also on a website or other

readily accessible public platform where on-going implementa-

tion of the CRISA principles may be tracked. Disclosure should

occur at least annually or on a continual basis according to

each institutional investor’s requirements. The code has been

endorsed by organisations such as the JSE and the Financial

Services Board.

For more on CRISA, please visit:

http://www.iodsa.co.za/default.asp?page=crisa

71

“GEPF serves on the JSE SRI Index Advisory Committee and assists the JSE with the SRI Index strategy review.”

Sustainable Returns for Pensions and Society Project

GEPF together with other stakeholders has been working on

the Sustainable Returns for Pensions and Society Project, which

is aimed at providing information, education and training for

Southern African pension fund trustees. This is in line with the

concerns of National Treasury over pension fund governance

articulated in the report, “Discussion Paper Preservation,

Portability and Governance”. Treasury is concerned that many

trustees may lack the competence and necessary skills to make

investment and management decisions consistent with the best

interest of beneficiaries. The Sustainable Returns Project sought

to provide Southern African pension fund trustees with a toolkit

for the implementation of ESG requirements as per Regulation

28 of the Pension Funds Act and the CRISA Code.

JSE SRI Index

GEPF serves on the JSE SRI Index Advisory Committee and

assists the JSE with the SRI Index strategy review in order to keep

the SRI Index at the forefront of ESG reporting and disclosure

best practice by SA listed companies. GEPF and the JSE have

had a successful partnership over the last number of years in

which GEPF has financially supported part of the annual research

costs of the JSE SRI Index in exchange for the ESG data used in

assessing companies for inclusion in the annual index

assessment.

For more on the JSE SRI Index, please visit:

http://www.jse.co.za/Products/SRI.aspx

GEPF has partnered with the Public Investment Corporation

(PIC), GEPF’s primary asset manager, on an ESG matrix that

analyses the JSE Top 100 companies against ESG criteria. (See

above “GEPF and PIC ESG Working Committee”.) GEPF and

PIC are currently in discussions with the JSE as to how best to

harmonise the research process for both the ESG matrix as well

as the JSE SRI Index.

For more info on the ESG matrix, please visit:

http://www.governance.usb.ac.za/current-projects/pic-corpo-

rate-governance-rating-matrix.aspx

Global Real Estate Sustainability Benchmark (GRESB)

GEPF has endorsed and signed on as an investor member of the

Global Real Estate Sustainability Benchmark (GRESB), an “industry-

driven organisation committed to assessing the sustainability

performance of real estate portfolios around the globe”. Prior

to GEPF’s endorsement of GRESB, no South African property

companies had participated in the annual GRESB survey. In

the first year of GEPF’s participation of the GRESB survey only

PIC Properties and Pareto, both wholly owned GEPF property

companies, participated in the 2013 survey.

An initial survey report was requested from the property

portfolio managers and the process of measuring the

environmental performance of real estate investment vehicles is

currently on-going.

GEPF’s property investment portfolio includes South African

property funds and directly owned South African property,

including office buildings, retail centres and other real estate

assets. Our mandate allows for a 5% – 7% asset allocation to

be invested in property. GRESB will assist GEPF further drive the

sustainability of the SA property sector and specifically those

property companies – both directly held and indirectly held – in

which the GEPF has invested.

For more info on GRESB, please visit: http://gresb.com/

72

“GEPF is a strong advocate for integrated reporting, which is backed by South Africa’s financial governance and regulatory system.”

International Integrated ReportingCommittee (IIRC) Pilot Programme

GEPF has been an active participant in the Investor Network of

the International Integrated Reporting Committee (IIRC) Pilot

Programme and Investor Network in South Africa and is a strong

advocate for integrated reporting, which is backed by South

Africa’s financial governance and regulatory system. GEPF

has provided feedback to the IIRC on the IIRC Consultation

Framework as well as to a number of investee companies as to

how best to improve the quality of their integrated reports from

an investor perspective. GEPF has also been represented at a

number of integrated reporting events in the year under review.

For more info on the IIRC, please visit: http://www.theiirc.org/

Forward looking commitments:

While GEPF has celebrated a number of successes with regards

to its responsible investment implementation during the year

under review, in the forthcoming year the GEPF ESG Unit intends

to review and update the GEPF Responsible Investment Policy

(2010). This is intended to achieve the following:

• to bring the policy in line with current best practices;

• to review and amend GEPF’s investment mandate with

PIC;

• to further elaborate on GEPF’s active ownership and ESG

integration expectations of PIC and other fund managers

investing on GEPF’s behalf;

• to implement the GEPF Board-approved policy and

framework for the election of nominee directors to listed

companies in which GEPF is invested; and

• to establish a set of ESG criteria that will apply to GEPF’s

fast-growing private equity portfolio, as well as to further

formalise and improve the monitoring of GEPF’s external

fund manager performance with regards to their active

ownership activities, ESG integration efforts within

investment decision making, and the public disclosure of

such activities as required by the CRISA Code.

16

Administration

To meet the requirements of GEPF’s Service Level Agreement

(SLA), the GPAA set out to pay 80% of benefits within 60 days

upon receipt of correctly completed documents.

Employee Benefits

Employee Benefits is the engine of the business, taking

end-to-end responsibility for admitting GEPF members,

maintaining their records, collecting contributions, paying

pensions and other benefits and looking after pensioner

maintenance. This includes doing life verification, updating

personal and banking details, and processing claims for spouses’

and orphans’ claims.

Highlights, achievements and challenges

Employee Benefits surpassed several previous pension

administration milestones in the 2013/14 financial year. The

team reached a five-year high for the number of exit benefits

paid (62 771) and collected R50-billion in contributions. Despite

a 20% increase in the member maintenance workload, 100% of

all member requests to update personal details were successfully

handled.

Good progress was made with the automatic life verification

process for pensioners, and in implementing the Pension

Redress Programme for members unfairly discriminated against

in the past. In addition, the unit was instrumental in raising the

overall level of knowledge in the GPAA about the finer details

of the Government Employees Pension Law – a crucial piece

of legislation for all employees. Business Support Services was

the inspiration behind the decision to introduce enterprise-wide

training in the GEP Law for the GPAA employees.

In terms of overall performance, Employee Benefits exceeded

five of the eight performance targets set for the year including

those for paying benefits accurately and on time.

Below is a brief overview of some of the main achievements of

the four sub-programmes in Employee Benefits.

• Membership: benefit statements were sent out to 16 948

members in the 2013/14 financial year, contributing to a

20% increase in member requests to update personal

details, nominate beneficiaries and the like. As at

31 March 2014, Membership had zero outstanding

update requests and was fully up to date.

• Operations: 100% of all exit payments were paid

accurately, against the target of 80%, and 77% were paid

within 60 days, exceeding the target of 75%. The sub-

programme paid a record number of exit claims

(62 771:2013/14; 54 607:2012/13). In addition,

Operations made 4 262 clean-break payments to the

spouses of divorcing members and pre-verified more than

138 200 applications under the Pension Redress

Programme.

Modernisation – the GPAA’s Service Delivery Improvement Programme

The GPAA’s vision is to be the leading and preferred fund

benefits administrator. To ground this vision in reality, the

organisation embarked on a transformational journey in 2011

74

“Only in exceptional circumstances is it still necessary to request a pensioner to follow the manual life verification process.”

called the Modernisation Programme. The programme is

intended to elevate the GPAA’s operational effectiveness and

efficiency, stakeholder management and governance.

Modernisation Roadmap 2014/15

The primary focus for 2014/15 will be the provision of

appropriate processes and systems that will transform the GPAA

into a service-oriented entity in line with the expectations of its

internal and external stakeholders.

The new pension administration platform’s capability will:

• allow flexibility, customisation, and continuous

development;

• allow full integration with workflow;

• allow real time processing and online functionality;

• fully integrate with financial and third party systems;

• produce reports and audit trails;

• allow for automated communication to stakeholders; and

• eliminate administrative obstacles.

eChannel – GEPF Online

eChannel was piloted in the previous financial year among

seven employer departments before full-scale deployment

commenced. By the end of the 2013/14 financial year, over 160

out of 708 employer departments (81%) of active members had

adopted eChannel.

Apart from improving payment turnaround times, the

deployment of eChannel is enabling client liaison officers to

use their time on more productive, value-adding functions

such as building relationships with employer departments and

stakeholders, and focusing on employer education, awareness

and compliance.

Automatic life verification

GEPF pensioners are experiencing the benefits of the

modernisation drive under way at the GPAA. Automatic life

verification was introduced during the year under review,

sparing pensioners the inconvenience of having to complete a

manual life verification process each year or risk having their

pension benefits suspended.

Using an automated process, Employee Benefits now conducts

life verification by referring to the National Population Register.

Only in exceptional circumstances is it still necessary to request a

pensioner to follow the manual life verification process.

Automatic verification has reduced life verification errors and

contributed to significant cost and time savings as it is no longer

necessary to process between 20 000 and 30 000 paper forms

every month.

Pension Redress Programme

This programme seeks to remedy past discriminatory practices

in the administration of pensions and benefits. It has targeted

three primary groups of people who were previously unfairly

denied certain benefits, typically as a result of gender or race

discrimination, or because of their employment status.

These three groups were strikers in the employ of the former

homelands whose pension contributions were suspended for the

duration of the strikes: people who were arbitrarily compelled to

wait for two to five years before being allowed to make pension

contributions, and others, such as pregnant women, who were

forced to resign for maternity leave.

75

“The greatest priority of most members, pensioners and beneficiaries is how quickly and accurately they receive their benefits.”

During the year under review, Employee Benefits pre-

verified 132 228 applications made through the Pension Redress

Programme, meaning that these claims were validated as

complete and eligible for redress. The next steps are to quantify

the liability and submit a proposal to the Public Service

Coordinating Bargaining Council.

Customer Relationship Management

Active member and pensioner customer experience

Customer Relationship Management is the first point of

contact between the GPAA and its customers, as well as the

vehicle for all subsequent interaction. The unit’s many touch-

points with members, pensioners and beneficiaries include

walk-in centres, mobile offices, the call centre, roadshows, and

special campaigns.

The greatest priority of most members, pensioners and

beneficiaries is how quickly and accurately they receive their

benefits. For the GPAA, one of the biggest obstacles standing

in the way of prompt, correct payment has been the time-

consuming, error-prone method for receiving documentation

from employer departments. The advent of eChannel has had

a major positive impact on the GPAA’s turnaround times as it

obviates the need for client liaison officers to collect or courier

documents from employer departments and reduces error rates

by providing for online validation of documentation.

Call centre

Owing to the use of out-dated technology and downtime

in the hosting system used, the call centre did not perform

satisfactorily during the year under review. The call centre

achieved a service level of only 62% against the target of 80%.

However, the GPAA moved decisively during the year to resolve

the problems being experienced. First, the decision was made to

acquire new hosting technology and to relocate the call centre

in April 2014. Once operational, the new technology will have

greater call-handling capacity and the functionality to monitor

call answering times and call durations.

Unclaimed benefits

Unclaimed benefits refer to benefits not paid within 24 months

of a member exiting the public service. There are various

reasons for this, the main one being difficulties in tracing former

employees because their personal information was incomplete

or incorrect.

At the start of the 2013/14 financial year, the opening balance

of the account stood at R583-million. This was reduced by 65%

during the course of the year. However, these gains were offset

by an even greater inflow of new cases, which were 16% higher

than in the previous year.

To deal with the influx of new cases, the GPAA has engaged

an external service provider that applies non-conventional

methods, such as engaging traditional leaders and village chiefs

in deep rural areas, to trace beneficiaries.

76

17

Actuarial valuation

In terms of the GEP Law and Rules of the Fund, an actuarial valuation must be carried out at least once every three years. Ten statutory

actuarial valuations have been undertaken since the establishment of the Fund in May 1996 with the most recent having been undertaken

as at 31 March 2012. This valuation was performed based on the Funding Policy that was adopted by the Board of Trustees in consultation

with the Minister of Finance. The policy provides for the valuation of the liabilities on a long-term best-estimate basis, and the

establishment of a solvency reserve to allow for funding and investment risk and uncertainty relating to future public service remuneration

and employment.

The actuarial results of the March 2012 valuation show that the Fund is 100% funded. There were sufficient assets to cover the actuarial

liabilities in full; the recommended reserves, however, were not fully funded. The table below indicates the funding level as at each

valuation. The assumptions underlying these valuations vary and are therefore not strictly comparable.

Results of GEPF actuarial valuations from May 1996 to March 2012

DATE FUNDING LEVEL % VALUATOR

1 May 1996 72.3 Ginsberg, Malan, Carson

31 March 1998 96.5 NBC Employee Benefits

31 March 2000 96.1 NBC Employee Benefits

31 March 2001 98.1 NBC Employee Benefits

31 March 2003 89.4 Alexander Forbes Financial Services

31 March 2004 96.5 Alexander Forbes Financial Services

31 March 2006 101.7 Alexander Forbes Financial Services

31 March 2008 100.0* Alexander Forbes Financial Services

31 March 2010 100.0* Alexander Forbes Financial Services

31 March 2012 100.0* Towers Watson

* The funding level has been determined with reference to the affordable reserves only.

Table 17.1: Results of GEPF actualrial valuations from May 1996 to March 2012

77

GEPF membership profile – contributing members

MEMBER CATEGORY MALE FEMALE TOTAL 2012 TOTAL 2010

“Other” members 411 779 683 933 1 095 712 1 009 880

“Services” members 153 579 49 103 202 682 225 168

TOTAL 565 358 733 036 1 298 394 1 235 048

GEPF membership profile – pensioners

MEMBER CATEGORY MALE FEMALE TOTAL 2012 TOTAL 2010

Retired members 100 068 122 839 222 907 211 931

Spouses 12 868 115 622 128 490 119 095

TOTAL 112 936 238 461 351 397 331 026

Significant mortality improvements are being observed internationally and South Africa is expected to follow suit. The actuaries therefore

believe that it is appropriate to include an explicit allowance for future mortality improvements in the 2012 valuation, as was the case in

the previous valuation.

The demographic assumptions used were the same as those used for the actuarial valuation of the Fund as at 31 March 2010. The

economic assumptions were updated to take into account the market conditions as at 31 March 2012. The results of the GEPF actuarial

valuation as at 31 March 2012 are shown in the following table.

Table 17.2: GEPF membership profile - contributing members

Table 17.3: GEPF membership profile - pensioners

78

GEPF valuation results as at 31 March 2012

FINANCIAL POSITION 31 MARCH 2012 R’MILLION

31 MARCH 2010R’MILLION

Contributing member liability 773 805 526 196

Pensioner liability 223 050 180 647

Other past discriminatory practices 14 761 29 879

Contingency reserves* 27 330 64 282

Total liabilities 1 038 946 801 004

Net assets 1 038 946 801 004

Surplus/(deficit) - -

* As at 31 March 2012 the full value of the recommended reserves was R464 181-million. This consists of a solvency reserve

(R254 000-million), 100% CPI pension increase reserve (R183 553-million) and a mortality improvement reserve (R26 628-million).

However, the Fund could only afford to hold a total of R27 330-million as a reserve at this date. On this basis 5.9% of the contingency

reserves could be held. As at 31 March 2010, a reserve of R64 282-million was affordable.

The 2012 actuarial valuation results show that the funding level has remained at 100% when compared with the 2010 actuarial valuation.

In terms of the policies adopted by the Trustees, they would have liked to increase the funding of the contingency reserves (including

solvency, mortality improvement and CPI pension increases) by an additional R436 851-million had the funds been available. However,

in terms of the practice adopted, it was felt appropriate to limit the level of contingency reserves to reflect a fully funded fund with

contingency reserves set at 5.9% of the desired level.

The employer currently contributes at a rate of 16% of pensionable salary in respect of “services” members and 13% in respect of “other”

members, reflecting the differences in the benefit structure of these two categories of members. Members of the Fund contribute at a

rate of 7.5% of pensionable salary.

Howard Buck

Valuator to the Fund

May 2013

Table 17.4: GEPF valuation results as at 31 March 2012

“Members of the fund contribute at a rate of 7,5% of pensionable salary.”

18

Annual FinancialStatements31 MARCH 2014

Contents

Statement of Responsibility by the Board of Trustees 80

Finance and Audit Committee Report 81

Risk Management Statement 82

Report of the Independent Auditors to the Board of Trustees 83

Report of the Valuator 85

Report of the Board of Trustees 87

Statement of Net Assets and Funds 90

Statement of Changes in Net Assets and Funds 91

Cash Flow Statement 92

Notes to the Annual Financial Statements 93

80

Responsibilities

The Board of Trustees (The Board) believes that, during the year

under review, in the execution of its duties it:

• Ensured that proper registers, books and records of the

Fund were kept, inclusive of proper minutes of all

resolutions passed by the Board,

• Ensured that proper internal control systems were

implemented by or on behalf of the Fund,

• Ensured that adequate and appropriate information was

communicated to the members of the Fund, informing

them of their rights, benefits and duties in terms of the

rules of the Fund,

• Took all reasonable steps to ensure that contributions,

where applicable, were paid in a timely manner to the

Fund,

• Obtained expert advice on matters where it required

additional expertise,

• Ensured that the rules, operation and administration of

the Fund complied with the applicable laws,

• Was not aware of non-compliance with any applicable

legislation, and

• Ensured that investments of the Fund were implemented

and maintained in accordance with the Fund’s investment

strategy.

Approval of the annual financial statements

The annual financial statements of the Government Employees

Pension Fund (GEPF) are the responsibility of the Board. The

Board fulfils this responsibility by ensuring the implementation

and maintenance of accounting systems and practices

adequately supported by internal financial controls.

These controls, which were implemented and executed by the

Fund, provide reasonable assurance that:

• The Fund’s assets are safeguarded,

• Transactions are properly authorised and executed, and

• The financial records are reliable.

The annual financial statements set out on pages 90 to 134 were

prepared in accordance with:

• The basis of accounting applicable to retirement funds in

South Africa as indicated in the principal accounting

policies contained in the notes to the financial

statements,

• The rules of the GEPF, and

• The provisions of the Government Employees Pension Law

(GEP Law).

The independent auditors, Deloitte & Touche and Nexia SAB&T,

have reported on these financial statements. During their

audit, the auditors were given unrestricted access to all

financial records and related data, including minutes of all

relevant meetings. The Board believes that all representations

made to the independent auditors during their audit were valid

and appropriate. The report of the independent auditors is

presented on pages 83 to 84.

These audited annual financial statements:

• Were approved by the Board and are signed on its behalf.

• Are certified by them to the best of their knowledge and

belief to be correct.

• Fairly represent the net assets of the Fund at 31 March

2014, as well as the results of its activities for the year

then ended.

……………………………………………………. …………………………………………………

Dr Renosi Mokate Mr Prabir Badal

Chairperson Vice Chairperson

6 October 2014 6 October 2014

Statement of Responsibility by the Board of Trusteesfor the year ended 31 March 2014

 

81

The Finance and Audit Committee (FA-C) acts in accordance with

applicable legislation and regulations. It adopted appropriate

formal terms of reference as its charter, and has regulated its

affairs in compliance with this charter. The FA-C has discharged

all of its responsibilities contained in the charter, which is

updated annually to ensure its relevance.

The FA-C’s responsibilities included the following:

• Examine and review the quality (adequacy, reliability and

accuracy) of GEPF’s annual financial statements and

interim financial statements.

• Make recommendations to the Board regarding the

approval of the annual financial statements, as well as the

adoption of the interim financial statements.

• Review the effectiveness of the internal control systems.

• Ensure that executive management implemented effective

and cost-effective corrective measures to address

accounting and auditing concerns identified in internal

and external audits.

• Ensure the entity’s compliance with certain critical

elements of the legal and regulatory framework, policies

and procedures.

• Oversee the establishment of the internal audit function

for the Fund (previously GEPF only relied on Government

Pensions Administration Agency (GPAA) internal audit

before separation), which included

- Approval of internal audit charter, methodology and

the internal audit three year rolling plan;

- Approval of reporting lines for internal audit, i.e.

functionally to the FA-C and administratively to the

Principal Officer; and

- Approval of the resources to execute the internal

audit coverage plan (i.e. budget and personnel).

• Oversee the coordination of activities between GPAA and

GEPF internal audit to ensure there is no duplication of

activities. Also oversee coordination with the external

auditors, and receiving the reports of significant findings

of GPAA internal audit and ensuring that management of

GPAA implement agreed management actions.

• Recommended the appointment of external auditors for

the five year period and ensure their independence and

objectivity

• Appointed a service provider to render risk management

services to the Fund, separating this function from

internal audit to ensure the independence of internal

audit.

Based on the information and explanations given by

management and the internal audit department, and discussions

with the independent external auditors on the result of their

audits, the FA-C is confident that the internal financial controls

are adequate to ensure that the financial records may be relied

upon for preparing the financial statements, and accountability

for assets and liabilities is maintained. Nothing significant has

come to the attention of the FA-C to indicate any material

breakdown in the functioning of these controls, procedures and

systems during the period under review.

The FA-C has evaluated the financial statements of the GEPF

for the year ended 31 March 2014. Based on the information

provided, they comply, in all material respects, with the Fund’s

stated accounting policies, the provisions of the GEP Law (21 of

1996), the GEPF Rules and the regulatory framework, which the

Board adopted based on the FA-C’s recommendation.

The FA-C agrees that the adoption of the going concern premise

in the preparation of these financial statements is appropriate.

The FA-C recommended the adoption of the financial statements

by the Board and the Board has approved the financial

statements.

The Finance and Audit Committee Report for the year ended 31 March 2014

…………………………………………………….

Mr Prabir Badal

Chairperson: FA-C

6 October 2014

 

82

Introduction

The risk management process assists the Board to execute its

fiduciary duty to actively manage the risks that would otherwise

affect or prevent the GEPF from achieving its strategic objectives

and to ensure the long term sustainability of Fund. The Board,

through the FA-C ensures that effective risk management

processes and procedures are in place to actively manage risk

that affect the Fund’s performance.

Mandate

The Board has committed the GEPF to a process of risk manage-

ment that is aligned to:

• The requirements of Section 6 and 7 of GEP Law and

Rules;

• The Pension Fund guideline for good governance, known

as PF130, issued by the Financial Services Board (FSB);

• Codes of good corporate governance, including the King

III code and the code issued by the Committee of

Sponsoring Organisations (COSO) – an internationally

accepted framework for good governance;

• ISO 31000:2009, Risk management – Principles and

guidelines; and

• Other relevant legislation.

The enterprise risk management policy and framework has been

reviewed and updated in February 2013 and brought in line with

ISO 31000:2009, Risk management – Principles and guidelines.

The updated risk management policy and framework has been

approved by the FA-C as well as the Board in March 2013.

Responsibility

Roles and responsibility for risk management within the GEPF

has been clearly defined within the GEPF’s risk management

policy and framework. The Board is ultimately responsible to

ensure that the Fund effectively manages risk. To this end, the

Board has formally delegated as defined in the Board Charter

and the Risk Management Policy and Framework, its oversight

role to the FA-C. The Risk Management Policy and Framework

allows for specific risks be allocated to the Board Sub-committees

in line with their mandate and the specific areas of specialisation

of each committee and to report on such risks to the FA-C.

The FA-C has established the Risk Management Liaison

Committee to coordinate risk management between the GEPF,

the Public Investment Corporation (PIC) and the GPAA, who

both manage risk on behalf of the Fund.

The Principal Executive Officer is the Fund’s nominated Chief

Risk Officer, and is accountable to the FA-C to coordinate,

embed and report on risk management performance in terms of

the Risk Management Policy and Framework. The risk manage-

ment function has been outsourced to PricewaterhouseCoopers

(PwC) and reports directly to the Chief Risk Officer on risk

management activity and performance.

Management is responsible for the day-to-day management of

risks and assisting the Chief Risk Officer as well as the Board

subcommittees with their risk management responsibilities

and ensuring that employees are aware of risk management

procedures in their operational areas.

Monitoring

The Board identified 18 strategic and 35 operational risks for

the Fund. During the year 2013/14 management implemented

controls and action plans to mitigate these risk. Progress on risk

management actions and controls was reported to the executive

management committee on a monthly basis and quarterly to the

FA-C. Independent monitoring of the risk management function

and progress is performed by internal audit through a risk based

audit approach and assurance was provided that the controls

are adequate and effective in mitigate risk.

Conclusion

The integrity of the GEPF’s financial reporting relies upon a

sound system of internal control and effective risk management

processes. The Board has implemented adequate and effective

policies and procedures covering the risk exposures prioritised

by the Board. The various policies implemented by the Board

include mechanisms to ensure compliance and continuous

improvement. The Board is of the opinion that it has maintained

sound risk management processes, policies and procedures,

and that these have kept the Fund’s risk exposure at acceptable

levels and within GEPF risk appetite.

Risk Management Statementfor the year ended 31 March 2014

83

We have audited the annual financial statements of the

Government Employees Pensions Fund, which comprise the

statement of net assets and funds as at 31 March 2014, the

statement of change in net assets and funds for the year then

ended, the cash flow statement and the notes to the financial

statements, which include the principal accounting policies and

other explanatory notes, as set out on pages 90 to 134.

Trustees’ responsibility for the annual financial statements

The Trustees are responsible for the preparation and presentation

of these financial statements, in accordance with the basis of

preparation applicable to the GEP Law, 21 of 1996, and the rules

of the GEPF, as set out in the notes to the financial statements,

and for such internal controls as the trustees determine is

necessary to enable the preparation of financial statements that

are free from material statements, whether due to fraud or error.

Auditors’ responsibility

Our responsibility is to express an opinion on these financial

statements based on our audit. We conducted our audit in

accordance with International Standards on Auditing. Those

standards require that we comply with ethical requirements

and plan and perform the audit to obtain reasonable assurance

whether the financial statements are free from material

misstatement.

An audit involves performing procedures to obtain audit evidence

about the amounts and disclosures in the financial statements.

The procedures selected depend on the auditors’ judgement,

including the assessment of the risks of material misstatement

of the financial statements, whether due to fraud or error. In

making those risk assessments, the auditors consider internal

controls relevant to the entity’s preparation and presentation of

the financial statements in order to design audit procedures that

are appropriate in the circumstances, but not for the purpose

of expressing an opinion on the effectiveness of the entity’s

internal control. An audit also includes evaluating the

appropriateness of accounting policies used and the

reasonableness of accounting estimates made by management,

as well as evaluating the overall presentation of the financial

statements.

We believe that the audit evidence we have obtained is

sufficient and appropriate to provide a basis for our audit

opinion.

Audit opinion

In our opinion the annual financial statements of the GEPF for

the year ended 31 March 2014 are prepared, in all material

respects, in accordance with the GEPF’s stated accounting

policies, the provisions of the GEP Law, 21 of 1996, and the rules

of the GEPF.

Restriction on use

The financial statements are prepared for regulatory purposes

in accordance with the basis of preparation indicated above.

Consequently the financial statements and related auditor’s

report may not be suitable for another purpose.

Other matters

The transactions of the GEPF which we audited in terms of

International Standards of Auditing during the course of our

audit were in accordance with applicable laws and rules in terms

of the GEP Law, and in all material respects, in accordance with

the mandatory functions of the entity, as determined by law or

otherwise.

We have reviewed the Annual Report as required by Section

13(2) of the GEP Law 21 of 1996, as amended, and in our

opinion, the information furnished in terms of Section 9 and 10

of the GEP Law, is presented in all material respect in accordance

with the requirements of the GEP Law 21 of 1996.

Report of the Independent Auditors to the Board of Trustees for the year ended 31 March 2014

84

With reference to Section 13(14) of the GEP Law, 21 of 1996, as

amended, we concur with the matters highlighted by the Fund

in the Annual Report.

We do not express an opinion on the financial condition of the

GEPF from an actuarial point of view.

…………………………............... ...................................................

Deloitte & Touche Nexia SAB&T.

Registered Auditors Registered Auditors

Per D Munu Per A Darmalingam

Partner Partner

Johannesburg Pretoria

6 October 2014 6 October 2014

85

Particulars of financial condition of the Fund

1. Net assets available for benefits amounted to

R1 038 946-million as at 31 March 2012.

2. The actuarial value of the net assets available for benefits,

for the purposes of comparison with the actuarial present

value of promised retirement and other benefits,

amounted to R1 038 946-million as at 31 March 2012.

3. The actuarial present value of promised retirement and

other benefits in respect of active members amounted to

R773 805-million as at 31 March 2012.

4. The actuarial present value of retirement benefits in

respect of pensioners amounted to R223 050-million as at

31 March 2012.

5. The full value of the data, past discriminatory practices

and contingency reserve accounts amounted to

R478 942-million as at 31 March 2012. This includes the

solvency reserve as at 31 March 2012. The affordable

level of the data and contingency reserves amounted to

R42 091-million as at 31 March 2012.

6. Details of the valuation method adopted (including that

in respect of contingency reserves) and details of any

changes since the previous summary of report.

• As for the previous valuation, the Projected Unit

Method was used to determine past service liabilities

and the future service contribution rate.

• Under the Projected Unit Method, the present value

of benefits that have accrued to members in respect

of service prior to the valuation date is compared

with the value of the Fund’s assets. Allowance is

made in the valuation of the accrued benefits for

estimated future salary increases, ill-health

retirements and deaths.

• A reserve of R4 711-million was set aside in respect

of previous discriminatory practices. This reserve was

obtained from the financial statements, being the

accumulated value of one per cent (1%) of the

funding level in 1998.

• A reserve of R10 050-million was set aside in respect

of errors or omissions in the valuation data. This

reserve was set at a level of 1.30% of the

contributing member liability.

• A reserve was held to provide for improvements for

all members:

• For pensioners, current mortality rates have been set

equal to the mortality rates calculated in the

experience investigation dated 31 March 2008 with

an allowance for mortality improvements

determined using the mortality assumption rated

down one and a half years.

• For active members, current mortality rates have

been set equal to the mortality rates calculated in

the same experience investigation with an allowance

for mortality improvements determined using the

mortality assumption rated down two and a half

years.

• The solvency reserve has been set based on

modelling by the Fund’s asset consultants. This

model is broadly based on a 1 in 10 year (10%)

probability of the funding level falling below a

certain level.

• A reserve was also determined at the valuation date

to fund the increase in the active member and

pensioner liabilities and increase in the required

contribution rate as a result of the Trustees seeking

to exercise greater discretion in granting pension

increases equal to 100% of CPI.

• When the above contingency reserves (excluding the

data and past discriminatory practice reserves) were

set up, it was not the intention of the Trustees to

hold such reserves if they will place the Fund into a

deficit funding level position. As at 31 March 2012,

the Fund could only afford to hold a total of

R27 330-million as contingency reserves. On this

basis 5.9% of the desired level of contingency

reserves could be held.

Report of the Valuatorfor the year ended 31 March 2014

86

7. Details of the actuarial basis adopted (including that in

respect of any contingency reserve) and details of any

changes since the previous summary of report.

• Net pre-retirement discount rate: 3.25% per annum

(previously 3.75%).

• Post-retirement net discount rate: 5.5% per annum

for actives and current pensioners (previously 5.8%

for active members and 5.6% for pensioners).

• Post retirement mortality: Rates based on observed

GEPF mortality. These rates are the same as those

used for the 2010 statutory valuation and are based

on an experience analysis carried out for the Fund

over the period to 31 March 2008.

• Salary increases: 7.7% per annum (previously 6.7%).

It is assumed that salaries will increase at an average

rate of 1% in excess of the long-term inflation

assumption of 6.7% per annum (previously 5.7%). In

addition, an allowance is made for merit salary

increments.

• Proportion married: Assumptions have been made

regarding proportions of members who are married

at each age. The age difference between males and

females is assumed to be four years, with males

older than their female counterparts.

• Expenses: An allowance for future administration

expenses of 0.3% of annual pensionable salary was

made.

• The contribution rate was determined using an

equity risk premium of 5% resulting in a discount

rate of 12.4% as opposed to the 11.2% used to

determine the liabilities which is based on a 3%

equity risk premium.

8. Any other particulars deemed necessary by the valuator

for the purposes of this summary. None.

9. The Fund does not fall under the ambit of the Pension

Funds Act, 1956 since it is governed by its own statute.

However in terms of the Fund’s own Funding Level Policy,

the Fund was considered to be financially sound in that

assets were equal to accrued liabilities and contingency

reserves (at 5.9% of the desired level) on a best estimate

basis.

................................................

Howard Buck

Fellow of the Actuarial Society of South Africa

For the purposes of professional regulation my primary regulator

is the Actuarial Society of South Africa.

In my capacity as valuator to the Fund.

May 2013

87

1 DESCRIPTION OF THE FUND

1.1 Type of fund

The GEPF is a defined benefit fund established in terms of the

GEP Law, 21 of 1996, as amended. In terms of Section 1 of

the Income Tax Act, Act 56 of 1962, the GEPF is classified as a

pension fund established by law.

1.2 Benefits

Benefits are determined in terms of the rules of the GEP Law and

are classified as follows:

• Normal retirement benefits,

• Early retirement benefits,

• Ill health and other retirement (discharge) benefits,

• Late retirement benefits,

• Resignation benefits,

• Death while in service benefits,

• Death after becoming a pensioner benefits,

• Spouses annuity benefits,

• Orphans’ annuity benefits, and

• Funeral benefits.

Unclaimed benefits are not written back to income as per

the Prescription Act but will remain in the Fund as unclaimed

until the member has been traced. Legitimate claims received

subsequent to write-offs are paid as the records are maintained.

This is in line with industry best practice principles as outlined in

PF Circular 126 as issued by the FSB.

All reasonable steps are taken to trace members, whose benefits

were not claimed, to effect payment to the correct member or

beneficiary.

1.3 Contributions

Members (employees of participating employers) contribute

7,5% of their pensionable emoluments to the GEPF. Employers

contribute 13% for civil servants and 16% for uniformed

employees, respectively, of a member’s pensionable emolument

to the GEPF.

1.4 Reserves

In terms of a collective agreement negotiated and agreed to

in the Public Service Co-ordinating Bargaining Council (PSCBC)

an actuarial reserve equal to 1% of funding level of the GEPF,

based on the result of the actuarial valuation as at 31 March

2001, was set aside to address past discriminatory practices.

The GEP Law and rules thereto were amended to increase the

pensionable service for members of former Non-Statutory Forces

(NSF), employees that participated in strikes in the former Ciskei,

and other employees that were previously discriminated against.

The actuarial reserve set aside to address past discriminatory

practices is allocated to account for the recognition of periods

of pensionable service based on agreements concluded in the

PSCBC.

The accounting provision for the reserves set aside to address

past discriminatory practices is summarised as follows (refer to

note 8 to the annual financial statements).

Report of the Board of Trustees for the year ended 31 March 2014

Reserve account balance 2014

R’000

2013

R’000

Ciskei Strikers 150 451 148 293

General Assistants 94 444 89 628

Other past discriminatory practices 6 397 900 5 535 778

Total balance at end of period 6 642 795 5 773 699

Table 18.1: Reserves

88

1.5 Rule amendments

The following new rules or rule amendments became effective

from 30 August 2013:

• Implementation of the Board term limit in terms of the

revised rule 4.1.2.

Previously, the GEP Law determined that the term of office of a

trustee shall be four years.

In terms of the revised rule, the term of office of a trustee shall

be four years. In the event that a new trustee or substitute

trustee has not been appointed at the expiration of such

term of the office, the term of office of the existing trustee or

substitute trustee will be automatically extended until the day

before the date of the appointment of the new trustee or

substitute trustee.

1.6 Board of Trustees

The Board consists of 16 members, with equal employer and

member representation, and each with a substitute. Member

representatives include a pensioner and a service representative,

as well as their substitutes, who were elected through a postal

ballot. Only Trustees participate in Board meetings, while

Trustees and substitutes participate in Board committee

meetings.

2 INVESTMENTS

2.1 Management of investments

The assets of the GEPF are managed primarily by the PIC. In

terms of their mandate the PIC appointed the following external

asset managers to manage part of the portfolio:

• Aeon Investment Management (Pty) Ltd.

• Argon Asset Management (Pty) Ltd.

• Black Rock Advisors UK Ltd.

• Coronation Asset Management (Pty) Ltd.

• First Avenue Investment Management (Pty) Ltd.

• International Bank for Reconstruction and Development.

• Investec Asset Managers (Pty) Ltd.

• Kagiso Asset Managers (Pty) Ltd.

• Mazi Capital (Pty) Ltd.

• Meago (Pty) Ltd.

• Mergence Africa Investments (Pty) Ltd.

• Prudential Portfolio Managers (Pty) Ltd.

• Sanlam Investment Managers (Pty) Ltd.

• Sentio Capital Management (Pty) Ltd.

• Mvunonala Asset Managers (Pty) Ltd.

• Perpetua Investment Managers (Pty) Ltd.

• JM Busha Asset Managers (Pty) Ltd.

• Vunani Fund Managers (Pty) Ltd.

• Absa Asset Management (Pty) Ltd

(Appointment terminated in December 2013).

• Afena Capital (Pty) Ltd

(Appointment terminated in December 2013).

• Cadiz Asset Management Ltd

(Appointment terminated in July 2013).

• Catalyst Fund Managers SA (Pty) Ltd

(Appointment terminated in July 2013).

• Stanlib Asset Management Ltd

(Appointment terminated in July 2013).

• Taquanta Asset Managers (Pty) Ltd

(Appointment terminated in July 2013).

The balance of the assets of the GEPF is invested in the Pan

African Infrastructure Development Fund (“PAIDF”) which is

managed on behalf of the Fund by Harith Fund Managers.

Nedbank Investor Services performs the investment accounting

function on behalf of the Fund.

2.2 Assets are invested in a range of asset classes

consisting of:

• Equities (shares in listed and unlisted companies);

• Fixed interest instruments;

• Money market instruments;

• Property; and

• Other investment instruments.

89

2.3 Other investments not in the name of the GEPF

In the 2010 financial year, some securities managed by the PIC

were registered in the nominee name of Standard Bank of South

Africa Limited and Nedcor Bank Limited, and the scrip accounts

were in the name of the PIC on behalf of GEPF. In the current

year all investments were registered in the name of GEPF, except

for a directly held property, Palm Grove, which was registered in

the name of CBS Property Portfolio (Pty) Ltd.

3 MEMBERSHIP

The GEPF membership as at 31 March 2014 consisted of

1 276 753 (2013: 1 275 206) government and parastatal

employees, as well as 391 071 (2013: 375 809) pensioners

receiving monthly annuity benefits.

4 ACTUARIAL VALUATION

An actuarial valuation of the GEPF is conducted at least ev-

ery three years as prescribed in section 17(3) of the GEP Law.

The latest actuarial valuation was performed as at 31 March

2012 based on the funding policy adopted by the Board in

consultation with the Minister of Finance. This funding policy

provides for evaluation of the liabilities on a long-term best

estimate basis and the establishment of a solvency reserve to

allow for funding, investment risks and uncertainty relating

to future public service remuneration and employment. The

required level of solvency was calculated independently by

Towers Watson (Pty) Ltd based on a detailed asset-liability study.

In terms of the Fund’s own funding level policy, the Fund was

considered to be financially sound in that assets were equal

to accrued liabilities and contingency reserves (at 19% of the

desired level) on a best estimate basis.

5 SUBSEQUENT EVENTS

Subsequent to the year-end, the Board approved a write off of

irrecoverable debt comprising of both estate and disallowances

overpayments amounting to R6,4-million. The debt write off

was done in line with the debt collection policy of the GEPF.

Table 18.2: Asset Classes

Asset class Strategic Asset Allocation Asset Allocation Range

Cash and money markets 4% 0-8%

Domestic bonds 31% 26-36%

Domestic property 5% 3-7%

Domestic equity 50% 45-55%

Africa equity (excl. SA) 5% 0-5%

Foreign bonds 2% 0-4%

Foreign equity 3% 1-5%

Guidelines have been set for the various asset classes and funds are invested accordingly to allow for a balanced portfolio. The approved

guidelines and actual asset allocation for the financial year under review are as follows:

90

2014 2013

Notes R’000 R’000

Assets

Non-current assets 1 422 910 682 1 237 929 038

Equipment 2 6 172 2 467

Investments 3 1 422 904 510 1 237 926 571

Current assets 27 040 586 25 369 722

Funding loan 4 6 716 6 716

Accounts receivable 5 6 365 748 11 854 054

Transfers receivable 11.2 4 261 34 546

Contributions receivable 6 5 456 338 7 797 298

Cash and cash equivalents 7 15 207 523 5 677 108

Total assets 1 449 951 268 1 263 298 760

Funds and liabilities

Funds 1 419 075 891 1 238 586 187

Accumulated funds 1 419 075 891 1 238 586 187

Reserves 6 642 795 5 773 699

Reserve account 8 6 642 795 5 773 699

Total funds and reserves 1 425 718 686 1 244 359 886

Non-current liabilities 574 270 583 095

Unclaimed benefits 9 574 270 583 095

Current liabilities 23 658 312 18 355 779

Benefits payable 10 22 270 952 16 613 581

Transfers payable 11.1 848 3 539

Accounts payable 12 1 384 030 1 736 417

Provisions 13 2 482 2 242

Total funds and liabilities 1 449 951 268 1 263 298 760

Statement of Net Assets and Fundsas at 31 March 2014

91

Accumulated funds Reserve Total Total

accounts 2014 2013

Notes R’000 R’000 R’000 R’000

Net income before transfers and benefits 240 847 684 - 240 847 684 246 392 797

Contributions received and accrued 6.2 50 495 008 - 50 495 008 49 076 395

Purchase of periods of service 14 32 096 - 32 096 24 304

Net investment income 15 190 519 994 - 190 519 994 196 701 321

Other income 16 623 620 - 623 620 1 114 083

Less:

Administrative expenses 17 (823 034) - (823 034) (523 306)

Transfers and benefits (59 483 074) (5 810) (59 488 884) (44 530 081)

Benefits 10 & 8 (57 857 685) (5 810) (57 863 495) (43 245 768)

Transfers to other funds 11.1 (27 747) - (27 747) (65 557)

Transfers from other funds 11.2 (22 722) - (22 722) 9 490

Interest paid 18 (1 574 920) - (1 574 920) (1 228 246)

Net income after transfers and benefits 181 364 610 (5 810) 181 358 800 201 862 716

Net income for the period 181 364 610 (5 810) 181 358 800 201 862 716

Funds and reserves

Balance at beginning of the period 1 238 586 187 5 773 699 1 244 359 886 1 038 946 197

Prior year adjustment – benefits - - - 3 550 973

Transfer of net investment return to reserves 8 (874 906) 874 906 - -

Balance at end of the period 1 419 075 891 6 642 795 1 425 718 686 1 244 359 886

Statement of Changes in Net Assets and Fundsfor the year ended 31 March 2014

92

2014 2013

Notes R’000 R’000

Cash flow from operating activities

Cash (utilised in)/ generated from operations 20 (3 250 245) 5 010 739

Contributions and other income received 53 459 588 48 117 481

Benefits paid during the year (52 214 950) (39 769 902)

Other expenses paid (4 494 883) (3 336 840)

Interest received 33 033 165 32 122 996

Interest paid (1 204 459) (812 897)

Dividends received 25 458 009 22 912 160

Transfers and bought services received/(paid) 9 221 (31 334)

Net cash inflow from operating activities 54 045 691 59 201 664

Net cash outflow from investing activities (44 515 276) (64 013 887)

Additions to equipment (5 265) (1 090)

Additions to investments (44 510 011) (64 012 797)

Net increase / (decrease) in cash and cash equivalents 9 530 415 (4 812 223)

Cash and cash equivalents at beginning of the year 5 677 108 10 489 331

Cash and cash equivalents at end of the period 7 15 207 523 5 677 108

Cash Flow Statementfor the year ended 31 March 2014

93

1 PRINCIPAL ACCOUNTING POLICIES

The principal accounting policies adopted in the preparation of

the financial statements are set out below and are consistent

with those of the previous year, unless otherwise stated.

1.1 Basis of presentation of financial statements

The annual financial statements are prepared in accordance with

the GEP Law’s requirements. The retirement fund industry best

practice principles are applied as the basis as well as the rules

of the Fund. This comprises adherence to Regulatory Reporting

Requirements (RRR) for Retirement Funds in South Africa as

issued by the FSB.

The financial statements are prepared on the historical-cost

and going-concern basis, modified by the valuation of financial

instruments and investment properties to fair value, and

incorporate the following principal accounting policies, which,

unless otherwise indicated, have been consistently applied.

1.2 Equipment

Historical cost includes costs that are directly attributable to the

acquisition of the asset. Subsequent costs are included in assets

carrying amount or recognised as a separate asset.

Equipment is stated at historical cost less accumulated

depreciation.

Depreciation is calculated on the historical cost using the

straight-line method over the estimated useful life. Residual

values and useful lives are assessed annually. Depreciation rates

are as follows:

Notes to the Annual Financial statementsfor the year ended 31 March 2014

Asset Classes Annual depreciation rate %

Computer Equipment 25%

Computer Software 33%

Furniture and Fittings 15%

Office Equipment 15%

Motor Vehicles 20%

Leasehold Improvements 20%

The recorded values of these depreciated assets are periodically

compared to the anticipated recoverable amounts if the assets

were to be sold. Where an asset’s recorded value has declined

below the recoverable amount and the decline is expected to

be of a permanent nature, the impairment loss is recognised as

an expense.

1.3 Financial instruments

Financial instruments include all financial assets and liabilities,

including derivative instruments, and investment properties.

1.3.1 Classification

1.3.1.1 GEPF classifies its financial assets into the

following categories:

• At fair value through the statement of changes in

net assets and funds.

• Loans and receivables

1.3.1.1.1 Financial assets classified at fair value through

the statement of changes in net assets and funds

The classification depends on the purpose for which the

financial assets were acquired, and is determined by

management at the initial recognition of the financial

assets.

Financial assets classified at fair value through statement

of changes in net assets and funds comprise equities, bills

and bonds, debentures, investment properties, unlisted

preference shares, collective investment schemes and

special investment products.

Table 18.3: Annual Depreciation

94

1.3.1.1.2 Loans and receivables

Financial assets classified as loans comprise direct loans to

individuals and companies.

Loans and receivables are non-derivative financial assets

with fixed or determinable payments that are not quoted

in an active market, other than those intended to be sold

in the short term, or those that are designated as at fair

value through the statement of changes in assets and

funds.

1.3.1.2 Financial liabilities

Financial liabilities that are not classified at fair value

through the statement of changes in net assets and funds

comprise accounts payable.

1.3.2 Recognition

The GEPF recognises financial assets and financial liabilities

on the date when the entity becomes a party to the

contractual provisions of the instrument.

Financial instruments are initially measured at fair value as

at trade date, including, for instruments not at fair value

through the statement of changes in assets and funds, any

directly attributable transaction costs.

Financial instruments carried at fair value through the

statement of changes in net assets and funds are initially

recognised at fair value, and transaction costs are

expensed in the statement of changes in net assets and

funds.

Financial instruments classified as loans and receivables are

recognised as assets when the entity becomes a party to

the contract and as a consequence has legal right to

receive cash.

1.3.3 Measurement

Subsequent to initial recognition, all financial assets

classified at fair value through the statement of changes

in net assets and funds are measured at fair value with

changes in their fair value recognised in the statement of

changes in net assets and funds.

Financial liabilities are measured at amortised cost using

the effective interest rate method.

1.3.3.1 Equities

Equity instruments consist of equities with primary listing

on the Johannesburg Stock Exchange Limited (JSE),

equities with secondary listing on the JSE, foreign-listed

equities and unlisted equities.

Equity instruments designated as fair value through the

statement of changes in net assets and funds are initially

recognised at fair value on trade date.

Listed Equities

Listed equity instruments are subsequently measured at

fair value and the fair value adjustments are recognised in

the statement of net changes in assets and funds.

The fair value of listed equity instruments with standard

terms and conditions, traded on active liquid markets, is

based on regulated exchange quoted closing prices at the

close of business on the last trading day on or before the

statement of net assets and funds date.

95

Unlisted Equities

Unlisted equity instruments are subsequently measured at

fair value, using the pricing models determined by the

GEPF, or by applying valuation techniques such as

discounted cash flow model, at arm’s length market

transactions in respect of the unlisted equities, net asset

values and price earnings multiple.

When discounted cash flows techniques are used,

discounted cash flows are based on management’s best

estimates and the discount rates used are market rates at

the statement of net assets and funds date applicable for

an instrument with similar terms and conditions.

Where other methods are used, inputs are based on the

market data at the date of the statement of net assets and

funds.

1.3.3.2 Preference shares

The fair value of preference shares classified as fair value

through the statement of changes in net assets and funds

is measured as indicated below:

Listed preference shares

The fair value of preference shares traded on active liquid

markets is based on regulated exchange quoted closing

prices at the close of business on the last trading day on or

before the statement of net assets and funds date.

Unlisted preference shares

The fair value of unlisted preference shares is determined

by applying appropriate valuation techniques such as

discounted cash flow model, recent arm’s length market

transaction in respect of preference shares, net asset

values and price earnings multiple.

The market yield is determined by using the appropriate

yields of existing listed preference shares that best fit the

profile of the instruments being measured, and a

discounted cash flow model is then applied using the

determined yield, in order to calculate the fair value.

1.3.3.3 Debentures

Debentures comprise unlisted debentures.

Debentures are financial assets with fixed or determinable

payment and fixed maturity date. The fair value is

estimated using the pricing models or by applying

appropriate valuation techniques such as discounted cash

flow analysis or recent arm’s length market transactions in

respect of unlisted debentures.

1.3.3.4 Bills and bonds

Bills and bonds comprise investments in government,

national or provincial administration, local authorities,

participating employers, subsidiaries or holding companies

and corporate bonds.

Listed bonds

The fair value of listed bonds traded on active liquid

markets is based on regulated exchange quoted closing

prices at close of business on the last trading day on or

before the statement of net assets and funds date.

Unlisted bills

The market yield is determined by using the appropriate

yields of existing listed bills that best fit the profile of the

instruments being measured, and based on the terms to

maturity of the instrument, adjusted for credit risk, where

appropriate, a discounted cash flow model is then applied

using the determined yield, in order to calculate the fair

value.

96

1.3.3.5 Investment properties

Properties held for a long term rentals yield or for capital

appreciation and not occupied by the Fund are classified as

investment property. Investment properties comprise

investment in commercial properties, residential

properties, industrial properties and hospitals. Investment

properties are carried at fair value.

Investment properties reflected at fair value are based on

open market fair values at the statement of net assets

and fund date, if the open market fair values cannot be

reliably determined, alternative valuation methods, such as

discounted cash flow projections or recent prices on active

markets for transactions of a similar nature are used.

The fair values are the estimated amounts for which a

property could be exchanged for on the date of valuation

between a willing buyer and a willing seller in an arm’s

length transaction.

The open market fair value is determined once every three

years by independent professional valuators. Interim

desktop valuations are performed annually by the same

independent professional valuators. Changes in fair value

are recorded in the statement of net assets and funds.

1.3.3.6 Collective investment schemes

Investments in collective investment schemes are initially

recognised at fair value, net of transaction costs that are

directly attributable to the investment.

These investments are subsequently measured at fair

value, which are the quoted unit values for listed schemes.

Unlisted schemes’ fair values are derived from the

investment scheme administrator with reference to the

rules of each particular collective investment scheme,

multiplied by the number of units held.

1.3.3.7 Special investment products

Special investment products are valued at gross total fair

value of all underlying instruments, included in the

structured products and or arrangements.

Where there are instruments within the structured

products, which require a different treatment, these are

measured separately in accordance with the measurements

criteria set out in a class they belong to.

1.3.3.8 Direct loans

Direct loans are measured at amortised cost using the

effective interest rate method, less impairment losses, if

any.

1.3.3.9 Money market instruments

Money market instruments are measured at amortised cost

using the effective interest rate method.

1.3.4 Derecognition

The GEPF derecognises a financial asset when the

contractual rights to the cash flows from the financial asset

expire or when it transfers the financial asset.

The GEPF uses the weighted average method to determine

realised gains and losses on derecognition.

A financial liability is derecognised when the obligation

specified in the contract is discharged, cancelled or

expired.

97

1.3.5 Impairments

1.3.5.1 Financial assets carried at amortised cost

The Fund assesses at each statement of net assets and

fund date, whether there is objective evidence that a

financial asset or a group of financial assets is impaired. A

financial asset or a group of financial assets is impaired

and impairment losses are incurred only if there is objective

evidence of impairment as a result of one or more events

that have occurred after the initial recognition of the asset

and that a loss event has an impact on the estimated

future cash flow of the financial asset or a group of

financial assets that can be reliably estimated.

Objective evidence that a financial asset or a group of

assets is impaired includes observable data that come to

the attention of the Fund about the following:

• Significant financial difficulty experienced by the

issuer or debtor;

• A breach of contract, such as a default or

delinquency in payments;

• A likelihood that the issuer or the debtors will enter

into a bankruptcy or other financial reorganisation;

• The disappearance of an active market for a

particular financial asset as a result of financial

difficulties; or

• Observable data indicating a measurable decrease

on the estimated future cash flows from a group of

financial assets since the initial recognition, though

the decrease cannot be identified with the individual

financial assets in a group, including;

- adverse changes on the payment status of the

issuers or debtors in the group; or

- national or local economic conditions that

correlate with defaults in the assets in a group.

The Fund assesses whether the objective evidence of

impairment exists individually for financial assets that are

significant first, and, if no evidence of impairment exist for

individually assessed assets, a group of financial assets

with similar credit risk characteristics are collectively

assessed for impairment (Refer to note 15 for additional

information).

Assets that are individually assessed for impairment and for

which an impairment loss is or continues to be recognised

are included in a collective assessment of impairment.

If there is objective evidence that an impairment loss has

been incurred on loans and receivables, the amount of the

loss is measured as the difference between the assets

carrying amount and the present value of estimated future

cash flow discounted at the financial assets original

effective interest rate.

The carrying amount of the asset is reduced and the

amount of the loss is recognised in the statement of

changes in net assets and funds. If a loan has a variable

interest rate, the discount rate for measuring any

impairment loss is the current effective interest rate

determined under the contract.

The Fund may measure the impairment loss on the basis of

the instrument fair value using an observable market price.

For the purposes of a collective evaluation of impairment,

financial assets are grouped on the basis of similar credit

risk characteristics. Those characteristics relevant to the

estimation of future cash flows for groups of such assets,

by being indicative of the issuer’s ability to pay all amounts

due under the contract terms of the debt instrument being

evaluated.

98

If, in subsequent periods, the amount of impairment loss

decreases and the decrease can be related objectively to an

event occurring after the impairment was recognised, the

previously recognised impairment loss is reversed in the

statement of changes in net assets and funds.

1.3.5.2 Impairment of other non-financial assets

Assets that have an indefinite life are not subject to

amortisation and are tested annually for impairment.

Assets that are subject to amortisation are reviewed for

impairment whenever events or changes in circumstances

that the carrying amount may not be recoverable occur.

An impairment loss is recognised for the amount by which

the asset’s carrying amount exceeds its recoverable

amount.

The recoverable amount is the higher of an assets fair value

less costs to sell and value in use.

For purposes of impairment, assets are grouped at the

lowest levels for which there are separately identifiable

cash flows.

1.3.5.3 Impairment of loans and receivables

A provision for impairment of loans and receivables is

established when there is objective evidence that the Fund

will not be able to collect all amounts due, according to

the original terms.

1.4 Cash and cash equivalents

Cash and cash equivalents comprise cash on hand, cash

deposited with financial institutions and other short-term

liquid investments with original maturities of three months or

less. Cash and cash deposits are measured at fair value.

1.5 Inventory

Inventory is valued at the lower of cost or net realisable value.

Cost is calculated using the weighted average method.

1.6 Accounts receivable

Accounts receivable are measured at fair value at initial

recognition if normal credit terms are exceeded, and are

subsequently measured at amortised cost using the effective

interest rate method. Appropriate allowances for estimated

irrecoverable amounts are recognised into Statement of

Changes in Net Assets and Funds when there is objective

evidence that the asset is impaired. The allowance recognised is

measured as the difference between the asset’s carrying amount

and the present value of estimated future cash flows discounted

at the effective interest rate computed at initial recognition.

Purchased service

Purchased service receivables are recognised upon acceptance

by the member of the quote issued by the GEPF for the

recognition of the purchase of a period as pensionable service.

No provision is made for potential doubtful purchase of ser-

vice debtors, as only the period paid for vests in favour of the

member.

1.7 Unclaimed benefits

Unclaimed benefits are not written back to income as per the

Prescription Act but will remain in the Fund as unclaimed until

the member has been traced. Legitimate claims received

subsequent to write-offs are paid as the records are maintained.

1.8 Accounts payable

Accounts payable are measured at fair value at initial recognition

if normal credit terms are exceeded, and are subsequently

measured at amortised cost using the effective interest rate

method.

99

1.9 Provisions

Provisions are recognised when the GEPF has a present legal or

constructive obligation as a result of past events, for which it is

probable that an outflow of economic benefits will be required

to settle the obligation, and a reliable estimate can be made of

the amount of the obligation. Where the effect of discounting

to present value is material, provisions are adjusted to reflect the

time value of money.

1.10 Contributions

Contributions are accounted for on the accrual basis except for

additional voluntary contributions, which are recorded in the

period in which they are received.

1.11 Purchase of service

Income from purchase of service is accounted for when it has

been approved and processed.

1.12 Dividend, interest, rentals and gains and losses on

subsequent measurement

1.12.1 Dividend income

Dividend income is recognised in the Statement of Changes

in Net Assets and Funds, when the right to receive payment

is established, which is the last date to trade for equity

securities. For financial assets designated at fair value

through Statement of Changes in Net Assets and Funds,

dividend income forms part of fair value adjustments.

1.12.2 Interest income

Interest income is recognised in the Statement of Changes

in Net Assets and Funds as it accrues, using the original

effective interest rate of the instrument calculated at the

acquisition or origination date. Interest income includes

the amortisation of any discount or premium or any

other differences between the initial carrying amount of an

interest-bearing instrument and its amount at maturity

calculated on an effective interest rate basis.

1.12.3 Rental income

Rental income from investment properties is recognised in

the Statement of Changes in Net Assets and Funds as it

accrues on a straight-line basis over the period of lease

agreements, unless another systematic basis is more repre

sentative of the time pattern in which use benefit derived

from the leased assets is diminished.

Property expenses are recognised in the Statement of

Changes in Net Assets and Funds as the services are

rendered.

1.12.4 Collective investment schemes distribution

Distribution from collective investment schemes are

recognised when the right to receive payment is

established.

1.12.5 Gains and losses on subsequent measurement

to fair value

Gains and losses on subsequent measurement to fair value

of investments and of all other financial instruments are

recognised as net investment (loss)/ income during the

period in which the change arises.

1.13 Transfers to and from the GEPF

Transfers to/ (from) the GEPF are recognised on the earlier of

receipt/ (payment) of the actual transfer value or the written

notice of transfer (Recognition of Transfer).

1.14 Interest payable to members exited from the GEPF

Interest payable to members in respect of the late payment of

benefits is accounted for on the accrual basis on any part of a

member’s benefit not paid within 60 days from the last day of

service.

1.15 Interest payable to dormant members

In terms of the GEPF rules interest is accrued to a dormant

member’s benefit until the effective date on which such benefit

becomes payable.

100

1.16 Foreign exchange gains or losses

Foreign monetary assets and liabilities are translated into South

African Rand at rates ruling at year-end. Unrealised differences

on foreign monetary assets and liabilities are recognised in the

statement of changes in net assets and funds in the period in

which they occur.

1.17 Operating leases

Operating leases include rental on properties and office

equipment. Rental expenses are recognised on a straight-line

basis over the lease term.

1.18 Interest on late payments of contributions and/ or

loans and receivables

Interest on late payments of contributions, surplus improperly

utilised and/ or loans and receivables is accounted for in the

statement of changes in net assets and funds using the effective

interest rate method.

1.19 Expenses incurred in managing investments

Expenses in respect of management of investments are

recognised as the services are rendered.

1.20 Judgements and estimates

Critical judgements in applying the entity’s accounting policies

In the process of applying the GEPF’s accounting policies,

the Board has made the following judgements to amounts

recognised in the financial statements (apart from those involving

estimations, which are dealt with separately below).

• Residual Values and useful lives

Residual values and useful lives of equipment are assessed

annually. Equipment is assessed for impairment annually,

or more frequently when there is an indication that an

asset may be impaired and the related impairment losses

recognised in the statement of changes in net assets and

funds in the period in which the impairment occurred.

• Provision for impairment of receivables

The provision of impairment of receivable is raised on all

receivable amounts aged 730 days and older, amounts

due from individuals who have attained the age of 70

years and older, as well as all fraud case receivables.

• Accumulated leave pay provision

The leave pay provision accounts for vested leave pay to

which employees may become entitled upon exit from the

service of the GEPF.

• Performance bonus provision

This provision accounts for performance bonuses payable,

based on the outcome of the performance evaluation of

employees and the relevant approval.

• Fair value estimation

The fair value of financial instruments traded in active

markets (such as trading and available-for-sale securities)

is based on quoted market prices at the statement of net

assets and funds date. The quoted market price used for

financial assets held by the Fund is the closing price.

The fair value of financial instruments that are not traded in

an active market (for example, over the counter derivatives) is

determined by using valuation techniques.

The Fund uses a variety of methods and makes assumptions that

are based on market conditions existing at each Statement of

Net Assets and Funds date.

Quoted market prices or dealer quotes for similar instruments

are used for long-term debt. Other techniques, such as

estimated discount cash flows, are used to determine fair value

for the remaining instruments.

101

Key assumptions of estimations with uncertainty

The key assumptions concerning the future, and other key

sources of estimation uncertainty at the statement of net assets

and fund date, that have a significant risk of causing a material

adjustment to the carrying amounts of assets and liabilities

within the next financial year, are the following:

• Accrual for benefits payable

The accrual for benefits payable is based on a calculation

performed by the GEPF’s actuaries and contains

actuarial assumptions and key estimates. These estimates

pertain to member profiles, amongst others. The actuarial

assumptions applied are in line with those applied for

statutory valuation purposes.

• Accruals and contingent liabilities for legal costs

Liabilities may exist for lawsuits by and against the GEPF.

The amounts accrued for/included in contingent liabilities,

include the GEPF’s independent attorneys’ best estimates

of the probable/possible legal liabilities which the GEPF

may incur.

• Investments

The net present value of certain unlisted investments has

been calculated using estimated future cash flows at

discounted rates.

Further information about the key assumptions concerning the

future and other key sources of estimation uncertainties are set

out in the relevant notes to the financial statements.

1.21 Accounting policies, changes in accounting estimates

and errors

Retirement funds apply adjustments arising from changes

in accounting policies and errors prospectively, the adjustment

relating to changes in accounting policies and errors is

therefore recognised in the current and future periods affected

by the change.

1.22 Reserves

Reserves accounts comprise particular amounts of designated

income and expenses and are recognised in the period in which

such income and expenses accrue to the Fund.

1.23 Benefits

Benefits expenses are recognised as the benefits occur, through

the statement of changes in net assets and funds on an accrual

basis.

Liabilities are raised for all benefits accruing at the end of the

financial year, which have not been paid through the Statement

of Net Assets and Funds.

1.24 Administration expenses and other expenses

Administration expenses incurred are recognised through the

Statement of Changes in Net Assets and funds on an accrual

basis.

1.25 Contingent assets and liabilities

Contingent assets are disclosed when there is a possible asset,

whose existence will be confirmed only by the occurrence or

non-occurrence of one or more uncertain future events not

wholly within the control of GEPF.

Contingent liabilities are disclosed when there is a possible

obligation that arises from the past event and whose existence

will be confirmed only by the occurrence or non-occurrence

of one or more uncertain future events not wholly within the

control of GEPF, or it is not possible that an outflow of resources

embodying economic benefits will be required to settle the

obligation, or the amount of the obligation cannot be measured

with sufficient reliability.

1.26 Related parties

In considering each possible related-party relationship, attention

is directed to the substance of the relationship and not merely

the legal form.

102

If there have been transactions between related parties, the

Fund will disclose the nature of the related party relationship

as well as the following information for each related party

relationship:

• The name of the government and the nature of its

relationship with the Fund,

• The nature and amount of each individually significant

transaction, and

• For other transactions that are collectively, but not

individually significant, a qualitative or quantitative

indication of their extent.

103

2 EQUIPMENT

Computer

equipment

R’000

Computer

software

R’000

Furniture

and fittings

R’000

Office

equipment

R’000

Motor

vehicles

R’000

Leasehold

improvements

R’000

Total

R’000

2.1 Current year, 2014

Gross carrying amount 1 309 311 2 885 2 855 656 3 333 11 349

At beginning of the year 1 054 311 2 188 1 875 656 - 6 084

Additions 255 - 697 980 - 3 333 5 265

Accumulated depreciation (790) (259) (1 812) (1 555) (317) (444) (5 177)

At beginning of the year (584) (245) (1 414) (1 177) (197) - (3 617)

Depreciation (206) (14) (398) (378) (120) (444) (1 560)

Net carrying amount at

end of the period 519 52 1 073 1 300 339 2 889 6 172

2.2 Prior year, 2013

Gross carrying amount 1 054 311 2 188 1 875 656 - 6 084

At beginning of the year 595 247 2 157 1 838 157 - 4 994

Additions 459 64 31 37 499 - 1 090

Accumulated depreciation (584) (245) (1 414) (1 177) (197) - (3 617)

At beginning of the year (414) (237) (1 090) (898) (105) - (2 744)

Depreciation (170) (8) (324) (279) (92) - (873)

Net carrying amount at

end of the period 470 66 774 698 459 - 2 467

104

3 INVESTMENTS

3.1 Investment Summary

Notes Fair Value

2014

R’ 000

Amortised

Cost

2014

R’000

Total

2014

R’000

Total

2013

R’000

Money market instruments* 3.1.1 - 43 858 316 43 858 316 57 707 253

Direct loans* 3.1.2 - 7 407 070 7 407 070 3 962 512

Bills and bonds** 3.1.3 459 427 717 - 459 427 717 439 231 842

Local 432 083 462 - 432 083 462 408 982 412

Foreign 27 344 255 - 27 344 255 30 249 430

Investment properties** 3.1.4 9 594 759 - 9 594 759 9 658 199

Equities** 3.1.5 841 842 861 - 841 842 861 685 661 149

Listed equities 803 387 637 - 803 387 637 651 311 554

Primary listings 602 680 798 - 602 680 798 489 815 182

Secondary listings 200 706 839 - 200 706 839 161 496 372

Unlisted equities 38 455 224 - 38 455 224 34 349 595

Local equities 36 523 589 - 36 523 589 32 758 731

Foreign equities 1 931 635 - 1 931 635 1 590 864

Preference shares** 3.1.6 910 968 - 910 968 957 160

Collective investment schemes** 3.1.7 59 862 819 - 59 862 819 40 748 456

Local instruments 122 653 - 122 653 181 411

Foreign instruments 59 740 166 - 59 740 166 40 567 045

1 371 639 124 51 265 386 1 422 904 510 1 237 926 571

*Classified as loans and receivables

**Classified as fair value through statement of changes in net assets and funds

Explanatory notes:

• Based on the revised strategic asset allocation which was approved by the Minister in the previous year, the Fund invested in

foreign collective instruments and foreign bonds to the value of R87,1-billion (2013: R70,8-billion). The investment is managed

by Black Rock Advisors UK Ltd and the International Bank for Reconstruction and Development.

105

• Included in the unlisted foreign equities above are investments in the PAIDF to the value of R1,9-billion. These infrastructure

investments are in Seawolf Jackup Ltd, Aldwych Holdings Ltd, Essar Telecoms Kenya Holdings Ltd, Main One Cable Company Ltd,

Main Street 652 (Pty) Ltd, Bongwe Investments (Pty) Ltd, TAV Tunisie SA, Socoprim and Lanseria International Airports. Additional

investments to the value of R261,4-million were made in the current year.

• Money market instruments with original maturities of three months or less are classified as cash and cash equivalents.

• The details of the top ten investments per investment category have been provided in the detailed schedules below and the

balance is included in ‘other’, where practicable. Investments which meet the top ten criteria in one year and do not meet the

criteria in another year, will be disclosed as zero and included in ‘other’ in the year in which they do not meet the criteria. Details

of the top ten investments are disclosed per entity level not per instrument level.

3.1.1 Money market instruments

Description Amortised Cost

2014

R’000

Amortised Cost

2013

R’000

Certificate of deposits 981 832 255 300

Development Bank of SA Ltd 981 832 203 718

Sanlam Ltd - 51 582

Fixed deposits 37 610 333 52 525 558

Nedbank Ltd 9 098 221 12 404 242

Standard Bank Group Ltd 8 658 966 10 979 481

ABSA Group Ltd 8 582 832 13 529 929

First Rand Ltd 7 984 123 12 400 786

Investec Bank Ltd 3 282 133 2 039 028

Venda Building Soc Ltd 4 058 4 034

African Bank Ltd - 1 168 058

Promissory notes 5 266 151 4 926 395

Land and Agricultural Development Bank of SA 4 677 244 4 144 068

Sanlam Ltd 588 907 782 327

Total money market instruments 43 858 316 57 707 253

Table 18.4: Money Market Instruments

106

3.1.2 Direct loans

Description Secured by Amortised Cost

2014

R’000

Amortised Cost

2013

R’000

Opiconsivia Investments 239 (Pty) Ltd Second ranking security over all Afrisam assets 1 287 963 1 241 361

Industrial Development Corporation SOC

Limited

Not secured* 1 034 833 517 409

Independent News & Media (South

Africa) (Pty) Ltd

Borrower cession and pledge in security, guarantee

from Sekunjalo, pledge and cession of shares

791 452 -

Bafepi Agri (Pty) Ltd Borrower cedes and pledges its right, title and in-

terest in and to the AgriGroupe shares, borrower

shareholder loans and any claim against AgriGroupe

to the lender

637 212 -

Bakwena Platinum Corridor

Concessionaire (Pty) Ltd

Suretyship, cession of bond and shares, shareholder

loans, equity options and contracts, general notarial

bond

408 444 408 089

Business Partners Ltd Cession of loan book and bank account 402 133 291 451

CBS Property Portfolio Ltd Properties held in CBS Property Portfolio Ltd 366 171 335 395

Acapulco trade and investments 164 (RF)

Pty Ltd

Cession of equity and shareholders loan claim which

Acapulco Trade and Investment 164 (Pty) Ltd has in

Lanseria Holdings (Pty) Ltd

299 451 -

Trust for Urban Housing Finance Loan Cession of loan book 290 080 300 149

Menlyn Main Cession and pledge of all shares held by BVI in MMIH;

cession of rights to dividends paid by MMIH; cession

of rights to proceeds paid by MMIH on shareholder

loan; PIC to have at least 3 directors on BVI Board

and veto rights on any matter that may have a finan-

cial impact on PIC loan.

208 963 -

Consol Holdings (Pty) Ltd Not secured** - 140 830

Edu-Loan (Pty) Ltd Cession of loan book - 130 000

Solar Capital De Aar(Pty) Ltd Shares in project company - 111 236

Johannesburg Housing Company Mortgage against property - 89 635

Other 1 680 368 396 957

Total loans 7 407 070 3 962 512

* This loan consists of uncertified notes which are held by the Central Securities Depository.

**This is a shareholders loan and by its nature does not have security.

Table 18.5: Direct Loans

107

Only loans that meet the top ten criteria in terms of market value have been separately disclosed in line with explanatory note on page x,

and the remaining loans have been disclosed as part of “Other”.

3.1.3 Bills and bonds

Description Issuer Rating

Long term

Fair value

2014

R’000

Fair value

2013

R’000

Bills 3 836 009 2 812 559

Eskom Holdings Ltd AAA 3 716 153 2 614 590

Republic of SA AAA 119 856 -

Telkom SA Ltd AAA - 197 969

Commercial paper 1 283 741 2 185 222

Bidvest Group Ltd AA 394 627 545 311

Macquarie Group SA Ltd AA- 249 480 795 615

Toyota SA Ltd AA+ 199 264 -

Mercedes-Benz SA Pty Ltd AA+ 191 534 328 248

Imperial (Pty) Ltd A 148 192 -

Barloworld Ltd A+ 100 644 280 714

MTN Group Ltd AA- - 235 334

Government bonds 281 005 752 249 340 947

Republic of SA AAA 280 793 498 249 129 643

Republic of Namibia AA- 212 254 211 304

Corporate bonds 25 137 157 27 249 487

Standard Bank Group Ltd AA 7 995 352 9 232 611

First Rand Ltd AA 2 821 310 2 991 791

ABSA Group Ltd AAA 2 691 448 3 686 760

Nedbank Ltd AA 1 229 485 1 527 154

Mercedes-Benz SA Pty Ltd AA+ 1 218 747 969 372

Old Mutual Life Assurance Ltd AA+ 1 159 735 1 196 452

African Bank Limited A 1 140 211 897 268

MTN Group Ltd AA- 1 064 037 1 368 930

Pareto Limited A 899 045 -

Investec Group Ltd A+ 713 217 571 145

RMB Holdings Ltd A+ - 587 826

Table 18.6: Bills and Bonds

108

Description Issuer Rating

Long term

Fair value

2014

R’000

Fair value

2013

R’000

Other - 4 204 570 4 220 178

Parastatal bonds 120 760 455 127 329 763

Eskom Holdings Ltd AAA 56 920 687 55 525 401

Transnet Ltd AA 19 028 314 20 442 870

South African National Road Agency Ltd A3 17 908 772 19 883 249

Trans-Caledon Tunnel Authority AAA 12 040 356 12 157 181

Development Bank of SA Ltd AA+ 11 331 379 14 891 197

City of Cape Town Aa3 764 689 816 977

City of Johannesburg AA- 753 454 1 125 291

Airports Company SA AA- 616 034 815 503

Telkom SA Ltd A 498 685 475 008

Ekurhuleni Metropolitan Municipality AA- 423 459 -

Land and Agricultural Development Bank of SA AA+ - 525 439

Other - 474 626 671 647

Other bonds 60 348 64 434

Lesotho Highlands * 60 348 64 434

Foreign Bonds 27 344 255 30 249 430

Black Rock Advisors (UK) ** 23 319 504 22 873 274

International Bank for Reconstruction and Development ** 4 024 751 7 376 156

Total bills and bonds 459 427 717 439 231 842

The Fitch or Moody’s ratings are used as investment grade ratings on national scale rating, unless otherwise mentioned. The rating

categories are as follows:

Long term Rating Fitch rating Moody’s rating

Highest grade quality AAA Aaa

High credit quality AA+, AA, AA- Aa1, Aa2, Aa3

Strong payment capacity A+, A, A- A1, A2, A3

*The Credit Risk Department of the PIC applied an A rating to these bonds.

**Foreign Bonds are held in a bond portfolio. The bond portfolio invests in a range of bonds with different credit ratings.

Table 18.6: Bills and Bonds (continued)

109

3.1.4 Investment properties

Description Fair Value

2014

R’000

Fair Value

2013

R’000

Residential properties 52 476 55 630

Industrial properties 1 398 000 1 270 551

Office properties 6 291 350 6 310 161

Retail properties 1 783 600 1 750 421

Specialised properties 82 200 87 224

Vacant land 237 735 204 090

Lease income accrual (250 602) (19 878)

Total properties 9 594 759 9 658 199

Name of property Address Valuation

Method

Date of last

valuation

Pledged as

guarantee

Fair Value

2014

R’000

Fair Value

2013

R’000

Trevenna 70 Meintjies Street,

Trevenna, Pretoria

DCF 2014/03/31 No 622 450 324 573

Riverwalk Office Park 41 Matroosberg Street,

Ashlea Gardens,

Pretoria

DCF 2014/03/31 No 580 000 548 577

Vangate Shopping Vanguard Drive,

Athlone, Cape Town

DCF 2014/03/31 No 475 800 457 633

Discovery Health 3 Alice Lane, Sandown,

Sandton

DCF 2014/03/31 No 308 500 372 000

GijimaAst Holdings 47 Landmarks Avenue,

Kosmosdal

DCF 2014/03/31 No 243 600 292 000

Iparioli Office Park 1166 Park Street,

Hatfield

DCF 2014/03/31 No 234 200 287 655

Webber Wentzel 10 Fricker Road, Illovo,

Johannesburg

DCF 2014/03/31 No 238 200 223 000

Table 18.7: Investment Properties

110

Name of property Address Valuation

Method

Date of last

valuation

Pledged as

guarantee

Fair Value

2014

R’000

Fair Value

2013

R’000

Jakaranda Shopping Centre Cnr Michael Brink and

Frates Street

Rietfontein

DCF 2014/03/31 No 202 000 213 500

Joggie Vermooten 57 Joyner Road,

Prospection, Isipingo

Ext. 12, Durban

DCF 2014/03/31 No 213 500 190 384

The Wedge 255 Rivonia Road,

Morningside, Sandton

DCF 2014/03/31 No 185 000 -

HSBC Cnr Maude Street &

Gwen Lane, Sandown

DCF 2014/03/31 No - 185 000

Total: 3 303 250 3 094 322

Name of property Address Valuation

Method

Date of last

valuation

Pledged as

guarantee

Fair Value

2014

R’000

Fair Value

2013

R’000

Investment Properties Total 3 303 250 3 094 322

Other 6 542 111 6 583 755

Lease income accrual (250 602) (19 878)

Total properties 9 594 759 9 658 199

Table 18.7: Investment Properties (continued)

Table 18.8: Investment Properties Total

111

2014 2013

R’000 R’000

3.1.4.1 Investment properties

Balance at beginning of the year 9 678 077 9 461 006

Additions

- Direct acquisition 422 773 -

- Capital expenditure 45 732 59 138

Disposals - (36 556)

Fair value adjustment (301 221) 194 489

Closing fair value 9 845 361 9 678 077

Operating lease income accrual (250 602) (19 878)

Balance at end of year 9 594 759 9 658 199

An independent valuation of the investment properties was performed as at 31 March 2014. The properties were valued at fair value

on the basis of the discounted cash flow method, using a risk-free rate adjusted for property risk. Additional adjustments were included

for tenant risk, building factors, vacancies, rental reversions to market, property costs, tenant installations and capital expenditure. The

key assumptions used by the valuators include the capitalisation rate and the discount rate. The discount rates reflect the risks inherent

in the net cash flows and are constantly monitored by reference to comparable market transactions.

The independent valuation was performed by professional valuators from DDP Valuers who are registered valuators in terms of Section

19 of the Valuers Professional Act (Act No 47 of 2000), and have recent experience in valuing similar properties at similar locations.

3.1.5 Equities

Description Fair Value

2014

R’000

Fair Value

2013

R’000

Primary listing on the JSE 602 680 798 489 815 182

Secondary listing on the JSE 200 706 839 161 496 372

Unlisted equities 38 455 224 34 349 595

Total equities 841 842 861 685 661 149

Table 18.9: Equities

112

Description Total

Issued shares

(Number)

GEPF’s Holding

(Number)

GEPF’s

Holding %

Fair Value

2014

R’000

Fair Value

2013

R’000

1. Primary listing on the JSE 602 680 798 489 815 182

Naspers Ltd 415 941 759 68 714 448 17 79 800 837 34 036 287

MTN Group Ltd 1 872 213 682 318 349 827 17 68 620 305 51 427 182

Sasol Ltd 649 976 616 95 165 728 15 56 106 858 34 090 334

Standard Bank Group Ltd 1 618 159 727 217 361 487 13 30 169 774 26 708 061

Sanlam Ltd 2 166 471 806 307 964 474 14 17 720 276 14 237 194

Remgro Ltd 481 106 370 84 820 672 18 17 383 149 15 297 589

First Rand Ltd 5 637 941 689 478 589 066 8 17 277 065 19 598 888

Steinhoff International Holdings Ltd 2 124 799 031 331 513 344 16 16 907 181 -

Aspen Phamcare Holdings Ltd 456 320 571 53 036 022 12 14 919 033 -

Bidvest Group Ltd 327 955 381 45 404 522 14 12 641 073 12 872 413

Shoprite Holdings Ltd 570 579 460 76 431 454 13 - 13 971 670

Growthpoint Property Ltd 1 823 603 559 413 199 552 23 - 11 135 728

Other - - - 271 135 247 256 439 836

2. Secondary listing on the JSE 200 706 839 161 496 372

Anglo American Plc 1 405 467 840 125 713 243 9 33 767 834 25 523 953

British American Tobacco Plc 2 026 456 406 57 059 882 3 33 532 951 20 939 483

SAB Miller Plc 1 672 353 230 58 414 786 3 30 722 672 25 017 109

BHP Billiton Plc 2 136 185 454 83 517 606 4 27 165 772 29 501 003

Richmont Securities AG 5 220 000 000 205 980 832 4 20 799 944 19 199 900

Old Mutual Plc 4 896 992 874 497 162 498 10 17 604 525 14 457 661

Reinet Investments S.C.A 1 959 412 860 264 252 426 13 6 138 584 5 447 656

Investec Plc 608 898 187 71 229 118 12 6 040 229 5 448 896

Mondi Ltd 367 240 805 31 036 933 8 5 734 384 4 151 763

Dangote Cement Plc 17 040 507 405 255 607 605 1 3 949 749 -

Ecobank Transnational Inc - - 20 - 3 276 485

Other 15 250 195 8 532 463

3. Unlisted equities 38 455 224 34 349 595

Pareto Ltd 3 459 251 062 3 459 251 062 100 15 262 000 13 839 313

Lexshell 44 General Trading (Pty) Ltd 200 000 100 000 50 5 655 000 5 270 500

Opiconsivia Investments 230 (Pty) Ltd 100 65.99 65.99 4 622 000 4 608 000

Community Property Fund** - - 57.73 3 118 623 2 910 177

ADR International Airports SA (Pty)Ltd 166 000 166 000 100 2 254 000 2 100 000

Pan African Infrastructure

Development Fund** - - 39.68 1 931 635 1 590 864

Free World Coating Ltd - - - 585 691 -

Housing Impact Fund of SA - - 10.93 570 104 532 054

Table 18.10: Shares

113

Description Total

Issued shares

(Number)

GEPF’s Holding

(Number)

GEPF’s

Holding %

Fair Value

2014

R’000

Fair Value

2013

R’000

CBS Property Portfolio Ltd 280 944 599 280 944 599 100 539 863 538 751

Schools and Education Investment

Impact Fund of SA

- - - 335 099 -

Bakwena Platinum Corridor

Concessionaire (Pty) Ltd** - - 7.81 - 282 420

PFN Holdings (Pty) Ltd 100 - 295 000

Other 3 581 209 2 382 516

There were no scrip lending transactions for the period ending 31 March 2014.

**Information relating to the total shares issued and GEPF’s holding number is not disclosed, as the nature of these instruments is not

pure equity.

3.1.6 Preference shares

Description Total

Issued shares

(Number)

GEPF’s Hold-

ing (Number)

GEPF’s

Holding

%

Fair Value

2014

R’000

Fair Value

2013

R’000

Allied Electronics Corporation 249 859 875 38 823 574 16 888 105 942 192

Alexander Forbes 324 407 089 1 178 528 - 22 863 14 968

Total preference shares 910 968 957 160

3.1.7 Collective investment schemes

Description GEPF’s Holding

(Number)

Fair value

2014

R’000

Fair value

2013

R’000

Black Rock Advisors (UK) 315 819 605 58 612 181 40 567 045

Investec Africa 197 061 312 620 956 -

Coronation African Frontiers Unit Trust 1 474 738 507 029 -

Sanlam Ltd 4 752 166 122 653 153 540

Liberty Group Ltd - - 27 871

Total 59 862 819 40 748 456

Table 18.10: Shares

Table 18.11: Preference shares

Table 18.12: Collective Investment Schemes

114

3.1.8 Risk management

Credit/ counterparty risk

Counterparty Direct

investment in

counterparty

R’000

Deposit/

liquid asset

with

counterparty

R’000

Guarantees Any other

instrument

R’000

Total per

counterparty

R’000

Exposure to

counterparty

as a % of the

fair value of

the assets

Banks

ABSA Group Ltd - 868 094 No 11 455 212 12 323 306 1

African Bank Ltd 2 476 680 - No 1 140 211 3 616 891 -

Barclays Africa Group Ltd 8 344 956 - No - 8 334 956 1

Capitec Holdings Ltd 2 786 163 - No 342 451 3 128 614 -

Development Bank SA Ltd - - No 12 313 211 12 313 211 1

Ecobank Transnational Inc 2 898 487 - No - 2 898 487 -

First Rand Ltd 17 277 065 - No 10 805 434 28 082 499 2

Investec Ltd 9 307 074 3 012 No 4 817 187 14 127 273 1

Land and Agricultural Development

Bank

- - No 4 921 586 4 921 586 -

Nedbank Ltd 8 380 942 8 676 982 No 10 327 707 27 385 631 2

Rand Merchant Bank - 250 000 No - 250 000 -

South African Reserve Bank - 83 173 No 42 83 215 -

Standard Bank Group Ltd 30 169 774 4 830 693 No 16 654 318 51 654 785 4

Asset managers

Black Rock Advisors UK) - - No 82 123 042 82 123 042 6

Coronation Asset Management (Pty)

Ltd

2 725 658 - No 507 029 3 232 687 -

International Bank for Reconstruction

and Development

- - No 4 033 552 4 033 552 -

Insurance companies

Alexander Forbes Ltd 22 863 - No - 22 863 -

Discovery Holdings Ltd 4 376 915 - No - 4 376 915 -

Liberty Group Ltd 1 512 685 - No - 1 512 685 -

MMI Holdings Ltd 4 057 654 - No 313 081 4 057 654 -

Old Mutual Life Assurance Company

SA Ltd

17 604 524 - No 1 159 735 18 764 259 1

Sanlam Ltd 17 720 276 - No 1 020 683 18 740 959 1

Santam Ltd 1 515 866 - No 212 616 1 728 482 -

Table 18.13: Risk Management

115

3.1.9 Market risk

Equity holdings

10 largest rand-value equity holdings

Description Total fair value holdings

and open instruments

R’000

Market movement by

5%

R’000

Naspers Ltd 79 800 837 3 990 042

MTN Group Ltd 68 620 305 3 431 015

Sasol Ltd 56 106 858 2 805 343

Anglo American Plc 33 767 834 1 688 392

British American Tobacco Plc Shares 33 532 951 1 676 648

SA Breweries Ltd 30 722 673 1 536 134

Standard Bank Group Ltd 30 169 774 1 508 489

Billiton Plc 27 165 772 1 358 289

Richmont Securities AG 20 799 944 1 039 997

Sanlam Ltd 17 720 276 886 014

Total value of 10 largest equity holdings 398 407 224 19 920 363

As a percentage of total investment plus bank balances 28% 1%

3.1.10 Other financial instruments

10 largest rand-value other financial instruments

Description GEPF’s Holding

(Number)

Total fair value

holdings and open

instruments

R’000

Market movement

by 5%

R’000

Black Rock Global Equity Fund 266 929 467 58 612 181 2 930 609

RSA 186 45 880 864 344 54 667 087 2 733 354

RSA 197 16 181 415 888 45 035 604 2 251 780

Blackrock Global Short Bond Barclays 16 871 415 888 23 319 504 1 165 975

RSA 210 14 300 596 502 23 235 473 1 161 774

Table 18.14: Market Risk

Table 18.15: Other Financial Instruments

116

Description GEPF’s Holding

(Number)

Total fair value

holdings and open

instruments

R’000

Market movement

by 5%

R’000

RSA 202 10 567 300 000 22 928 484 1 146 424

RSA 208 19 036 069 778 17 611 384 880 569

RSA203 16 841 282 133 17 248 706 862 435

RSA 204 15 887 264 503 16 363 482 818 174

RSA 212 10 548 719 749 13 806 128 690 306

Total value of 10 largest other instruments 292 828 033 14 641 400

As a percentage of total investments plus bank balances 20% 1%

3.1.11 Foreign currency exposure

Description Fair value at end

of period

USD ’000

Fair value at end of

period

R’000

Market movement

by 5%

R’000

Pan African Infrastructure Development Fund (PAIDF) 183 366 1 931 635 96 582

Black Rock Advisors UK Ltd 7 795 776 82 123 042 4 106 152

Ecobank Transnational Inc 275 148 2 898 487 144 924

Dangote Cement Plc 374 942 3 949 749 197 487

International Bank for Reconstruction and Development 382 897 4 033 552 201 678

Investec Africa 58 946 620 956 31 048

Coronation Africa 48 131 507 029 25 351

Total value of foreign instruments 9 119 206 96 064 450 4 803 222

As a percentage of total investments plus bank balances 7% -

Table 18.15: Other Financial Instruments (continued)

Table 18.16: Foreign Currency Exposure

117

2014 2013

R’000 R’000

4 FUNDING LOAN

Sefalana Employee Benefits Organisation (SEBO) 6 716 6 716

This is an unsecured, interest free loan utilised to fund SEBO’s property, plant and equipment. Recovery is dependent on the fair value

of SEBO’s assets upon liquidation.

Liquidators were appointed to liquidate SEBO during the 2005 financial year. The liquidation was dependent upon the registration of all

the title deeds in respect of investment properties. Subsequent to the registration of all the title deeds in respect of investment properties

in the name of the GEPF, the liquidators would then finalise the liquidation of SEBO. The liquidators have used three different scenarios

to estimate the amount which will be due to the GEPF on the final liquidation of SEBO. GEPF has followed a conservative approach by

adopting the lowest estimate provided by the liquidators.

118

2014 2013

R’000 R’000

5 ACCOUNTS RECEIVABLE

Accrued interest 40 390 34 651

Accrued dividends 2 290 469 4 067 186

Estates debt 23 944 23 981

Total estates debt 70 179 64 971

Less: provision for doubtful debts (46 235) (40 990)

Fraud cases debt - -

Total fraud cases debt 44 239 43 171

Less: provision for doubtful debts (44 239) (43 171)

Investment debtors 901 580 6 240 644

Lease debtor 250 602 19 878

Government Pensions Administration Agency 20 125 22 694

Purchased service 40 030 27 772

Purchased service not recovered at retirement or death 518 155

Divorce debt 1 304 679 407 363

South African Post Office 2 218 2 913

Sundry debtors 349 975 053

Associated Institutions Pension Fund 17 895 -

National Treasury 14 250 -

Temporary Employees Pension Fund 252 -

Prepayments 1 422 172 -

Overpayments 36 275 31 764

Total overpayments 49 517 43 046

Less: provision for doubtful debts (13 242) (11 282)

6 365 748 11 854 054

119

2014 2013

R’000 R’000

6 CONTRIBUTIONS

6.1 Contributions receivable

Participating employers 96 928 31 353

Additional employer contributions* 1 222 563 1 493 680

Additional NSF employer contributions** 4 136 503 6 271 791

Interest on outstanding contributions 344 474

Statement of Changes in Net Assets and Funds 5 456 338 7 797 298

* This is an amount owing to the GEPF in respect of additional liabilities placed on the GEPF resultant from decisions by the employers

to afford exiting members enhanced benefits as per section 17.4 of the GEP Law (e.g. voluntary severance packages / early retirement

without downscaling).

**This is an amount owing to the GEPF in respect of additional liabilities arising out of the revised NSF pension dispensation. The

additional cost will have to be met by each individual employers.

2014 2014 2014 2013

R’000 R’000 R’000 R’000

Contributions Contributions Contributions Contributions

accrued received receivable receivable

6.2 Reconciliation of contributions receivable

Member contributions 18 666 444 (18 666 444) - -

Employer contributions 31 828 340 (34 169 170) 5 455 994 7 796 824

Interest on outstanding contributions 224 (354) 344 474

50 495 008 (52 835 968) 5 456 338 7 797 298

Statement of Changes in Net Assets and Funds 50 495 008

120

2014 2013

R’000 R’000

7 CASH AND CASH EQUIVALENTS

Cash resources 1 536 376 1 468 997

Short term investments 13 671 147 4 208 111

15 207 523 5 677 108

The money market instruments with original maturities of three months or less are classified as cash and cash equivalents.

8 RESERVES

In terms of a collective agreement negotiated and agreed to in the PSCBC, an actuarial reserve was set aside to address past

discriminatory practices.

This note illustrates the detailed split of that reserve balance between Ciskei strikers, general assistants and other past discriminatory

practices.

2014 2014 2014 2014

R’000 R’000 R’000 R’000

Ciskei strikers General assistants Other past Total

reserve reserve discriminatory reserve

practices reserve accounts

Balance at beginning of the period 148 293 89 628 5 535 778 5 773 699

Transfers and benefits (5 810) - - ( 5 810)

Benefits paid (5 810) - - (5 810)

Net loss after transfers and benefits (5 810) - - (5 810)

Net loss for the period (5 810) - - (5 810)

Transfer from net investment return to reserves 7 968 4 816 862 122 874 906

Balance at end of period 150 451 94 444 6 397 900 6 642 795

121

9 UNCLAIMED BENEFITS

2014 2013

R’000 R’000

Balance at the beginning of the period 583 095 758 483

Transferred from benefits 856 985 737 556

Benefits paid (962 781) (1 007 241)

Interest provision 96 971 94 297

Balance at the end of period 574 270 583 095

RECONCILIATION OF NUMBER OF CASES

2014 2013

R’000 R’000

Cases Amount Cases Amount

Bank rejections 6 460 154 441 8 076 134 155

Benefits directly transferred to unclaimed upon exit 5 923 239 077 10 788 395 287

Unclaimed funeral benefits 528 3 566 592 3 909

Benefits transferred to unclaimed without complete documents 652 37 577 711 41 488

Benefits payments with a tax directive declined 271 15 981 306 7 016

Dispute cases 42 6 549 13 1 240

Untraced transfer to external service provider 3 215 117 079 - -

Balance at the end of period 17 091 574 270 20 486 583 095

In the prior year, a unit consisting of 18 staff members responsible for tracing unclaimed benefits was established. This has resulted in a

1.5% reduction from the prior year balance.

122

10 BENEFITS

2013 2014 2014 2014

R’000 R’000 R’000 R’000

Benefits Benefits accrued Benefits paid Benefits

payable current year during year payable

Net Benefit Payments 14 797 376 57 857 685 (52 570 775) 20 084 286

Gratuities 2 321 017 8 276 630 (8 241 275) 2 356 372

Withdrawal benefits 7 098 415 18 768 175 (15 066 143) 10 800 447

Monthly pensions 1 001 548 24 849 838 (24 721 010) 1 130 376

Retrenchment benefits 21 438 123 698 (116 978) 28 158

Death benefits 4 302 968 5 636 514 (4 220 788) 5 718 694

Funeral benefits 38 702 164 990 (170 099) 33 593

Orphan benefits* 13 288 36 365 (33 007) 16 646

Unclaimed benefits** - 1 475 (1 475) -

Interest to members 1 816 205 1 528 981 (1 158 520) 2 186 666

Benefits payable*** 16 613 581 59 386 666 (53 729 295) 22 270 952

Statement of Changes in Net Assets and Funds 57 857 685

*Orphans benefits are payable in terms of the provisions of Rule 14.6.3 to the GEP Law, which was introduced during the 2003 financial

year. The benefit offered was reviewed as a result of difficulties experienced with the implementation thereof and referred back to the

PSCBC to be renegotiated.

**Unclaimed benefits are not written back to income as per the Prescription Act but will remain in the Fund as unclaimed until the member

has been traced. Legitimate claims received subsequent to write-offs are paid as the records are maintained.

***Benefits payable as at 31 March 2014 and benefits accrued during the year includes an amount of R4,7-billion (2013: R3,7-billion)

representing exit cases that were not fully processed at year-end.

123

11 TRANSFERS

2013 2014 2014 2014 2014

R’000 R’000 R’000 R’000 R’000

Effective Number of Transfers Transfers Return on Transfers Transfers

date members payable approved transfer paid payable

11.1 Transfers to other funds

Bulk transfers in terms of Rule 12

of the GEP Law

Municipal transfers 2013/2014 89 3 539 23 249 6 921 (30 171) 3 538

Individual transfers 1 267 (267) -

Prior year adjustment* (2 339) (351) (2 690)

90 3 539 21 177 6 570 (30 438) 848

Transfers approved 21 177

Return on transfers 6 570

Statement of Changes in Net Assets and Funds 27 747

*Prior year adjustment

The adjustment of R2,7-million transfers payable relates to the reversal of transfers expense raised in the prior year on members who

requested to transfer to other funds. The reversal is mainly due to members deciding not to transfer or passing away before the actual

transfer.

In line with the accounting framework of the GEPF, the adjustment of R2,7-million relating to the transfers expense in the prior year has

been applied prospectively and therefore recognised in the current year.

124

11.2 Transfers from other funds

2013 2014 2014 2014 2014

R’000 R’000 R’000 R’000 R’000

Effective Number of Transfers Transfers Return on Transfers Transfers

date members receivable approved transfer received receivable

Transfers in terms of Rule 12 of

the GEP Law

Individual transfers 2013/2014 35 34 546 10 142 493 (7 563) 37 618

Prior year adjustment* (29 802) (3 555) (33 357)

35 34 546 (19 660) (3 062) (7 563) 4 261

Transfer approved (19 660)

Return on transfers (3 062)

Statement of Changes in Net Assets and Funds (22 722)

*Prior year adjustment

The adjustment of R33,4-million on transfers receivable relates to the reversal of transfers income raised in the prior year on members

who requested to transfer to GEPF. This was according to article 4(6)(e) of the Act on the Abolition of Development Bodies, 1986 (Act 75

of 1986) which states that a person shall within six months be given a non-current choice either to remain a member of the respective

pension fund or to become a member of the pension fund applicable to employees in the Public Service.

In the current financial year, a letter was sent to the employer of the abovementioned members informing them of the reversal of the

requested transfers. This reversal is in accordance with article 2(2) of the said Act, which states that abolishment of the development body

shall not be later than 30 June 1987.

In line with the accounting framework of the GEPF, the adjustment of R33,4-million relating to the transfers income in the prior year has

been applied prospectively and therefore recognised in the current financial year.

125

2014 2013

R’000 R’000

12 ACCOUNTS PAYABLE

Administrative creditors 112 524 5 421

Operating lease accrual 541 140

Child maintenance (court orders) 2 198 848

Contributions (employers) 4 612 2 782

Dormant members 1 185 1 078

Associated Institutions Pension Fund - 2 084

Temporary Employees Pension Fund - 403

Investment creditors 925 981 1 182 049

Income Received in Advance* 10 000 -

National Treasury 15 403 341

Non-Statutory Forces contribution - 344 337

Outstanding SA Post Office vouchers 1 852 2 875

Portfolio management fees payable 232 394 158 591

Sundry creditors 77 340 35 468

1 384 030 1 736 417

*This is cash received in the prior year from Mpilo Consortium for a call option that was granted by the Fund to purchase 50% of shares

held in Ecobank Transnational Incorporated. Refer to note 23.2 for additional information.

13 PROVISIONS

Provision for accumulated leave pay 446 227

Balance at beginning of year 227 225

Provided 1 098 830

Utilised (879) (828)

Provision for bonuses 2 036 2 015

Balance at beginning of year 2 015 1 436

Provided 1 913 1 900

Utilised (1 892) (1 321)

Balance at end of period 2 482 2 242

126

2014 2013

R’000 R’000

14 PURCHASE OF PERIODS OF SERVICE

GEPF members 26 286 20 343

Past discriminatory members 5 810 3 961

32 096 24 304

15 NET INVESTMENT INCOME

Income from investments 34 089 802 32 633 124

Interest 32 415 284 31 000 599

Other income 266 161 228 227

Property income 1 408 357 1 404 298

Net profit on sale of investments* 35 652 827 32 495 237

Adjustment to fair value** 126 105 829 133 392 356

Impairment of Investments*** - (20 345)

Total investment income 195 848 458 198 500 372

Less: expenses incurred in managing investments

- Management Fees (1 484 979) (773 480)

- PAIDF (Management fees and other expense) (57 913) (48 251)

- Property expenses (560 058) (480 790)

- Transaction costs and other expenses (3 225 514) (496 530)

Total investment expenses (5 328 464) (1 799 051)

Net investment income 190 519 994 196 701 321

*Profit on sale of investments 39 375 216 32 597 733

Loss on sale of investments (3 722 389) (102 496)

Net profit on sale of investments 35 652 827 32 495 237

**Dividend income amounting R23,6-billion (2013: R22,4-billion) is included in the adjustment to fair value, in line with the requirements

of the RRR for Retirement Funds in South Africa as issued by the FSB.

***There were no impairment adjustments in the current year based on the independent valuation as stated below:

127

Reconciliation of impairment

Description 2014

R’000

2013

R’000

Legend Lodges (Pty) Ltd - 20 345

Total - 20 345

In arriving at the impairment figures, the GEPF took the following impairment triggers into account which were considered on all of its

impaired investments:

• Uncertainties on the going concern on audited financial statements of its investees.

• Actual breaches of any original funding agreements, that resulted in renegotiation of those agreements.

• Where cash flow projections have been revised downwards, it resulted in a decrease in enterprise values of investees.

• Anticipated pressure on investees in servicing their debt obligations.

16 OTHER INCOME

Interest received 2014 2013

R’000 R’000

Arrear contributions 2 141 1 777

Purchase of service 2 133 5 512

Additional employer contributions – early retirement 104 413 44 187

Additional employer contributions – NSF 440 277 1 030 850

Divorce debt 20 989 6 935

Operating bank account 53 446 24 540

Other 221 282

623 620 1 114 083

Table 18.17: Reconciliation of Impairment

128

17 ADMINISTRATIVE EXPENDITURE

2014 2013

R’000 R’000

17.1 Total administrative expenditure

Administration expenses 731 816 446 883

Actuarial fees 2 989 5 542

Investment accounting fees 10 058 8 373

Investment performance analysis 4 092 3 430

Audit fees 2 568 2 392

Depreciation 1 560 873

Foreign currency loss 38 66

Legal costs 4 216 1 042

Bad debts - 423

Operating expenses 28 454 23 262

Operating lease payments 5 202 2 895

Operating lease smoothing adjustment 400 (344)

Personnel expenses 23 368 20 218

Personnel expenditure (refer note 17.2) 14 462 11 427

Executive officer expenditure (refer note 17.3) 2 612 2 750

Principal officer expenditure (refer note 17.4) 2 793 2 308

Trustee expenditure (refer note 17.5) 3 501 3 733

Increase in provision for doubtful debt 8 273 8 251

823 034 523 306

17.2 Personnel remuneration and expenses

Remuneration to permanent and contract employees 12 544 9 379

Retirement funds contributions 1 224 1 434

Training expenses 432 375

Other benefits (housing, medical, etc) 262 239

14 462 11 427

129

2014 2013

R’000 R’000

17.3 Principal Executive Officers’ remuneration and expenses

Remuneration and allowances 2 535 2 465

Bonuses 77 285

2 612 2 750

17.4 Principal Executive Officers’ remuneration and expenses

Remuneration and allowances 2 517 1 848

Acting Allowance 276 -

Bonuses - 460

2 793 2 308

17.5 Board of Trustees remuneration and expenses

Meeting allowances 3 348 3 634

Expenses 153 99

3 501 3 733

18 INTEREST PAID

2014 2013

R’000 R’000

Interest paid to members 1 528 981 1 171 528

Interest paid to members exited from the GEPF 1 354 540 1 100 024

Interest paid to external funds in respect of members exited from the GEPF 88 714 69 573

Interest paid to NSF members 85 727 1 931

Interest paid to employers (NSF) 45 831 56 620

Interest paid to dormant members 108 98

1 574 920 1 228 246

130

2014 2013

R’000 R’000

19 OPERATING LEASE

INCOME

Future minimum lease payments receivable under non-cancellable operating leases:

Receivable within one year 833 809 870 931

Receivable between two and five years 1 631 571 2 008 327

Receivable after five years 268 233 350 331

2 733 613 3 229 589

EXPENSES

Future minimum lease payments under non-cancellable operating leases:

Payable within one year 4 501 846

Payable between two and five years 16 874 -

21 375 846

131

2014 2013

R’000 R’000

20 CASH GENERATED FROM OPERATIONS

Net income after transfers and benefits 181 358 800 201 862 716

Adjusted for: (185 382 688) (193 450 588)

Interest received (33 038 904) (32 114 682)

Interest paid 1 574 920 1 228 246

Dividends received (23 681 292) (22 402 333)

Adjustment to fair values of investments (102 424 537) (110 990 023)

Profit on sale of investments and property (35 652 827) (32 495 237)

Impairment of investments - 20 345

Foreign currency loss/(income) 2 533 421 (210 276)

Depreciation 1 560 873

Increase in doubtful debt provision 8 273 8 251

Movement in provisions 5 278 325 3 472 486

Net transfers (in)/out 18 373 31 762

Adjusted net income after transfers and benefits (4 023 888) 8 412 128

Changes in working capital 773 643 (3 401 389)

Decrease /(Increase) in accounts receivable 954 166 (3 482 011)

Increase/(Decrease) in accounts payable (180 523) 80 622

Cash flow (utilised in)/ generated from operations (3 250 245) 5 010 739

132

21 FINANCIAL MANAGEMENT AND ASSOCIATED RISKS

Investment activities expose the GEPF to various types of risks

that are associated with the financial instruments and markets

in which they are invested. The nature and extent of financial

instruments as at financial year end and the risk management

policies employed by the GEPF and its investment administrator

are discussed below.

21.1 Market risk and interest rate risk

Market risk is the risk that the value of a financial instrument

or investment will fluctuate due to changes in market prices,

irrespective of whether those changes are caused by

circumstances particular to the investment or to the investment

market in general. Interest rate risk is the risk that the value

of a financial instrument or the income received from such

instruments will fluctuate due to movements in market interest

rates. Exposure to market and interest risk is for the account

of the GEPF due to it being a defined benefit arrangement,

and is managed primarily by setting strategic asset allocation

percentages for the various asset classes, which are designed

to match the inflation risk that impacts both the liabilities and

assets, as well as market and interest risk.

The investment managers are required to diversify the

investments of the GEPF and disperse investments within classes

of assets such that exposure to any single investment is

limited and the performance of the asset classes are similar to

the performance of the corresponding sections of the market

as a whole.

Equities are the most volatile asset class and therefore the

biggest source of short-term risk for the portfolio. The Investment

Committee, on behalf of the Board, monitors this risk against pre-

determined benchmarks. The investment manager outsources

the management of approximately 25% of the equity portfolio

to other external fund managers who possess both the resources

and expertise to adequately address any potential equity market

risk. The fair value of the equity portfolio at 31 March 2014 was

R841,8-billion (2013: R685,7-billion).

21.2 Credit risk

Credit risk is the risk that a counterparty to a financial instrument

or investment will default on its obligation, in part or in total,

thereby causing financial loss to the GEPF.

This risk is managed by the investment manager through models

developed in-house and by external credit rating agencies.

Money is placed with A-rated obligors (excluding loans and

advances) within limits set by the investment manager on behalf

of the Board.

The credit risk pertaining to loans and advances is managed

partially through a combination of derivative structures and

guarantees for the credit exposure as appropriate. Loans and

advances are approved by the relevant governance structures

within the investment manager.

21.3 Liquidity risk

Liquidity risk is the risk that the investments will not readily

convert into cash should the need for funds arise.

Liquidity risk is managed by investing the majority of assets

in government stocks and equities within an active market,

enabling the investments to be efficiently liquidated if necessary

to satisfy cash flow requirements. In addition, substantial cash

holdings mitigate this risk.

133

21.4 Currency risk

Currency risk is the risk that the value of a financial instrument

denominated in a currency other than the reporting currency

may fluctuate due to changes in foreign currency exchange

rates, between the reporting currency and the currency in which

the instrument is denominated. The Fund’s exposure to currency

risk is mainly in respect of the foreign investments made in the

Pan African Infrastructure Development Fund, International

Bank for Reconstruction and Development and Black Rock

Advisors UK Limited, which are denominated in US Dollars (See

note 3.1.11).

Currency risk is managed primarily by setting limits to strategic

asset allocation percentages for foreign asset classes and

hedging in other instances.

21.5 Solvency risk

Solvency risk is the risk that the investment returns on assets

will not be sufficient to meet the GEPF’s contractual obligations

to members. An undertaking by the Government, as employer,

to ensure that the funding level remains above 90% and the

setting of strategic asset allocation percentages following an

asset-liability modelling exercise, mitigates this risk. Such an

exercise will be repeated regularly to ensure that the employer

contribution rate, solvency reserve and strategic asset allocation

percentages are managed to constrain the solvency risk within

levels acceptable to the stakeholders.

22 RELATED PARTIES

In regards to the Fund, the majority of the participating

employers relate to the entire government and the predominant

numbers of GEPF transactions are with related government

entities. This would result in an exorbitant amount of related party

disclosure, which in the opinion of the Trustees would not

necessarily add value to the users of the financial statements.

• Contributions received of R34,2-billion

(2013: R29,9-billion) and contributions receivable of

R186-million (2013: R479,6-million) are from the

employer which is the government of the Republic of

South Africa.

• Trustees of the fund who are also members of the Fund

contribute to the Fund and may receive benefits upon exit

from the Fund in terms of the Fund rules.

• Remuneration and expenses of key management

personnel is disclosed in note 17 to the annual financial

statements.

• The PIC is wholly owned by the government of the

Republic of South Africa. Management fees amounting to

R775,7-million (2013: R416,2-million) was paid from the

Fund to PIC for investment management services in terms

of the approved investment mandate.

23 CONTINGENT LIABILITIES

23.1 Benefits

A contingent liability exists for members that retired from the

GEPF prior to 31 March 2014, for whom no duly completed

exit documentation have been received. The GEPF cannot

estimate the benefits payable to such members exactly, because

the quantum of the liability is dependent on:

• the reason for exit from service,

• the final salary of the respective members upon exit, and

• the period of pensionable service, which period may be

altered by means of added service, dependent on the exit

reason, e.g. ill health.

134

A provision has been made in the financial statements for the

actuarial estimate of the above liability, but the benefits owing

cannot be calculated exactly.

23.2 Investments

GEPF granted Mpilo Consortium a call option to purchase 50%

of the shares held in Ecobank Transnational Incorporated. The

period of the call option is 5 years from 31 August 2012 with a

strike price of USD 0,20. As at 31 March 2014 the shares were

trading at USD 0,09 per share and it is management’s view that

the strike price is unlikely to be met, and thus unlikely for Mpilo

to exercise the option. Due to the uncertainty over the share

price ever matching the strike price, the Mpilo option is assessed

as a contingent liability.

23.3 Pending liability

No contingent liability exists in respect of a legal claim against

the GEPF on the date on which the financial statements were

approved.

24 CAPITAL COMMITMENTS

During the 2007/2008 financial period, the GEPF commit-

ted to an investment to the PAIDF. As part of this investment

the GEPF committed to make capital contributions amounting

to USD 250,0-million translating to R2,6-billion. At 31 March

2014, USD 204,6-million translating to R2,1-billion, of the initial

commitment has been invested. The remaining capital

commitment of USD 45,4-million translating to R478,4-million

is payable approximately within the next two years. The PAIDF

investment is managed by Harith Fund Managers.

135

NOTES:

136

NOTES:

137

Regional and Satellite Offices:

Bisho (Eastern Cape) - Provincial

No. 12, Global Life Office Centre, Circular Drive, Bisho

Bloemfontein (Free State) - Provincial

No . 2 President Brand Street, Bloemfontein

Cape Town (Western Cape) - Provincial

21st Floor, No. 1 Thibault Square, LG Building, Cape Town

Durban (KZN) - Satellite

8th Floor, Salmon Grove Chambers, 407 Anton Lembede Street

Johannesburg (Gauteng) - Satellite

2nd Floor, Lunga House, 124 Marshall Street

Kimberley (Northern Cape) - Provincial

11 Old Main Road, Kimberley

Mafikeng (North West) - Provincial

Office No. 4/17, Mega City, Mmabatho, Mafikeng

Mthatha (Eastern Cape) - Satellite

Room 54, 8th Floor PRD Building, Sutherland Street

Nelspruit (Mpumalanga) - Provincial

Block A, Ground Floor, 19 Hope Street, Ciliata Building, Nelspruit

Pietermaritzburg (KZN) - Provincial

3rd Floor, Brasfort House, 262 Langalibalele Street, Pietermaritzburg

Polokwane (Limpopo) - Provincial

87(a) Bok Street, Polokwane

Port Elizabeth (Eastern Cape) - Satellite

Ground Floor, Kwantu Towers, Vuyisile Mini-Square

Pretoria (Gauteng) - Provincial

Kingsley Centre Ground Floor, Cornere Steve Biko and Stanza Bopape Streets, Arcadia

138

Toll free no: 0800 117 669 | Fax: 012 326 2507

E-mail: enquiries@gepf.gov.za

Postal address: GEPF Private Bag X63, Pretoria, 0001

www.gepf.gov.za